# BAKSHISH SINGH v. M/S DARSHAN ENGINEERING WORKS & ORS

- **Citation:** [1993] Supp. 3 S.C.R. 178
- **Court:** Supreme Court of India
- **Decided:** 1993-10-11
- **Bench:** P.B. Sawant, Yogeshwar Dayal
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/bakshish-singh-v-m-s-darshan-engineering-works-ors-12275
- **Pages:** 26

## Headnote

Constitution of India-Arlicle 19( 1 )(g}-A period of 5 years as qualifying service for getting the gratuity prescribed under section 4( 1) (b) of the Payment of Gratuity Act-Whether violative of-Held-No.
Service Law-Payment of Gratuity Act, 1972-Development and changes in the concept of Gratuity-Factors to be considered while fu:ing it-Entitlement under S. 4( 1 )(b }-Whether unreasonable and violative of Art.
19( 1 )(g)-Need for central legislation on gratuity and the object and ambit of
Payment of Gratuity Act 1972.
The Appella!lt joined the service of the resp. employer as a 'fitter' on
2nd March 1968 when his age was 54 years and 3 months; and he resigned
from service on 10th Dec. 1978 after a total period of continuous service
of more than 10 years, his last drawn wages being Rs. 335 p.m. In the
meanwhile the Payment of Gratuity Act, 1972 came into force on 21st Sept.
1972. After giving resignation w.e.f. 10th Dec 1978, the appellant claimed
gratuity under section 4(l)(b) of the Act which was rejected by the respondent company. The Controlling Authority under section 7 of the Act
allowed his claim, and calculated the amount of gratuity due to the
appellant as Rs. 1782 at the rate of 15 days wages per year of service for
all the 10 years taking the last drawn wages of Rs. 335 p.m. as the basis of
the calculation. The respondent-employer challenged it before the Appellate Authority who dismissed the Appeal, whereafter a writ petition under
Articles 226 & 227 of the Constitution was preferred by the respondent
· employer in the High Court.
The High Court confirmed the interpretation adopted by the
statutory Authorities of S.4(1) namely that all the three Clauses (a), (b) &
(c) thereof are independent of each other. It, however, held S.4(1) (b) of the
Act which entitles an employee to gratuity on his retirement of resignation
after a continuous service of 5 years - as an unreasonable restriction on
H the employer's right to carry on his business and, therefore violative of Art.
178
B. SINGH v. ENGG. WORKS
179
19(1) (g) of the Constitution. The High Court also denied the gratuity A
awarded to the appellant by the Authorities.
Against the High Court judgment two appeals • one by the Union of
India and other by the aggrived employee ·were preferred.
Allowing the appeals, this court
HELD : 1. Article 19(1) (g) of the Constitution of India comes into
picture only if, among others, [a] it is shown that the short qualifying
period of service throws on any particular employer such financial burden
as would force him to close his establishment and [b] the provision is not
B
one of the minimum service conditions which must be made available to the C
employees. Hence, the provision for a short qualifying period per se is not
invalid and cannot be struck down generally as being violative of Article 19
(1) (g) of the Constitution. (194-E-F]
Gannent cleaning works v. Its Workmen, (1962) 1 SCR 711, followed.
Express Newspapers v. Union of India & Ors., (1959) SCR 12, ex·
plained & distinguished.
U. Unichoyi & Ors. v. The State of Kerala, (1962) 1 SCR 946, relied on.
D
Management of Wenger & Co. v. Their Workmen, (1963) Supp. 2 SCR E
862 and Mis British Paints (India) Ltd. v. Its Wrokmen, (1966) 2 SCR 523,
referred to.
2. In dealing with the financial obligation involved on account of the
introduction of the gtratuity s<:heme, it was necessary to bear in mind the
actual rather than the theoretical impact of the Scheme. Since not more F
than 3 to 4 percent of the employees retired every year, the financial burden
caused by the gratuity scheme was much less than what its theoretical
enunciation would indicate. (195-B·C]
Management of Wenger & Company v. Their Workmen, (1963) supp. 2
SCR 862; Straw Board Manufacturing Company Ltd. v. Their Workmen, G
[1977) 3 SCR 1991, relied upon.
Delhi Cloth & General Mills Ltd. v. Their Workmen & Ors. etc., (1969)
2 SCR207, referred to.
3. It cannot be disputed that the Payment of Gratuity Act is a welfare H

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BAKSHISH SINGH
v.
M/S DARSHAN ENGINEERING WORKS & ORS.
OCTOBER 11, 1993
[P.B. SAWANT AND YOGESHWAR DAYAL, JJ.]
Constitution of India-Arlicle 19( 1 )(g}-A period of 5 years as qualifying service for getting the gratuity prescribed under section 4( 1) (b) of the Payment of Gratuity Act-Whether violative of-Held-No.
Service Law-Payment of Gratuity Act, 1972-Development and changes in the concept of Gratuity-Factors to be considered while fu:ing it-Entitlement under S. 4( 1 )(b }-Whether unreasonable and violative of Art.
19( 1 )(g)-Need for central legislation on gratuity and the object and ambit of
Payment of Gratuity Act 1972.
The Appella!lt joined the service of the resp. employer as a 'fitter' on
2nd March 1968 when his age was 54 years and 3 months; and he resigned
from service on 10th Dec. 1978 after a total period of continuous service
of more than 10 years, his last drawn wages being Rs. 335 p.m. In the
meanwhile the Payment of Gratuity Act, 1972 came into force on 21st Sept.
1972. After giving resignation w.e.f. 10th Dec 1978, the appellant claimed
gratuity under section 4(l)(b) of the Act which was rejected by the respondent company. The Controlling Authority under section 7 of the Act
allowed his claim, and calculated the amount of gratuity due to the
appellant as Rs. 1782 at the rate of 15 days wages per year of service for
all the 10 years taking the last drawn wages of Rs. 335 p.m. as the basis of
the calculation. The respondent-employer challenged it before the Appellate Authority who dismissed the Appeal, whereafter a writ petition under
Articles 226 & 227 of the Constitution was preferred by the respondent
· employer in the High Court.
The High Court confirmed the interpretation adopted by the
statutory Authorities of S.4(1) namely that all the three Clauses (a), (b) &
(c) thereof are independent of each other. It, however, held S.4(1) (b) of the
Act which entitles an employee to gratuity on his retirement of resignation
after a continuous service of 5 years - as an unreasonable restriction on
H the employer's right to carry on his business and, therefore violative of Art.
178
B. SINGH v. ENGG. WORKS
179
19(1) (g) of the Constitution. The High Court also denied the gratuity A
awarded to the appellant by the Authorities.
Against the High Court judgment two appeals • one by the Union of
India and other by the aggrived employee ·were preferred.
Allowing the appeals, this court
HELD : 1. Article 19(1) (g) of the Constitution of India comes into
picture only if, among others, [a] it is shown that the short qualifying
period of service throws on any particular employer such financial burden
as would force him to close his establishment and [b] the provision is not
B
one of the minimum service conditions which must be made available to the C
employees. Hence, the provision for a short qualifying period per se is not
invalid and cannot be struck down generally as being violative of Article 19
(1) (g) of the Constitution. (194-E-F]
Gannent cleaning works v. Its Workmen, (1962) 1 SCR 711, followed.
Express Newspapers v. Union of India & Ors., (1959) SCR 12, ex·
plained & distinguished.
U. Unichoyi & Ors. v. The State of Kerala, (1962) 1 SCR 946, relied on.
D
Management of Wenger & Co. v. Their Workmen, (1963) Supp. 2 SCR E
862 and Mis British Paints (India) Ltd. v. Its Wrokmen, (1966) 2 SCR 523,
referred to.
2. In dealing with the financial obligation involved on account of the
introduction of the gtratuity s<:heme, it was necessary to bear in mind the
actual rather than the theoretical impact of the Scheme. Since not more F
than 3 to 4 percent of the employees retired every year, the financial burden
caused by the gratuity scheme was much less than what its theoretical
enunciation would indicate. (195-B·C]
Management of Wenger & Company v. Their Workmen, (1963) supp. 2
SCR 862; Straw Board Manufacturing Company Ltd. v. Their Workmen, G
[1977) 3 SCR 1991, relied upon.
Delhi Cloth & General Mills Ltd. v. Their Workmen & Ors. etc., (1969)
2 SCR207, referred to.
3. It cannot be disputed that the Payment of Gratuity Act is a welfare H
180
SUPREME COURT REPORTS [1993] SUPP. 3 S.C.R.
A
measure introduced in the interest of the general public to secure economic
justice to workmen and to assist them in their old age and to ensure them
a decent standard of life on their retirement. (202-H, 203-A]
4. On both grounds, viz., that the provisions for payment of gratuity
contained in Section 4 (1) (b) of the Act are one of the minimal service
B
conditions which must be made available to the employees notwithstanding
the financial capacity of the employer to bear its burden and that the said
provisions are a reasonable restriction on the right of the employer to carry
on his business within the meaning of Article 19 (6) of the Constitution, the
said provisions are both sustainable and valid. (203-B-C]
c
5. In labour jurisprudence the concept "gratuity" has undergone a
metamorphosis over the years. The dictionary meaning may suggest that
gratuity is a gratuitous payment, a gift or a boon made by the employer to
the employee as per his .sweet-will. It necessarily means that it is in the
discretion of the employer whether to make the payment or not and also to
D choose the payee as well as the quantum of payment. However, in the
industrial adjudication it was considered as reward for a long and meritori·
ous service and its payment, therefore, depended upon the duration and the
quality of the service rendered by the employee. At a later stage, it came to
be recognised as a retiral benefit in consideration of the service rendered
and the employees could raise an industrial dispute for introducing it as a
E
condition of service. (192-F -G-H, 193-A]
6. Even before the present Act was placed on the statute book, the
courts had recognised gratuity as a legitimate reitral benefit earned by the
employee on account of the service rendered by him. It became a service
F
condition wherever it was introduced whether in lieu of or in addition to
the other retiral benefits. The employee could also legitimately demand it
as retiral benefit by raising an industrial dispute in that behalf, if neces·
sary. (193-D-E]
7. The industrial adjudicators recognised gratuity as such and
G granted it either in lieu of or in addition to other retiral benefits such as
pension or provident fund depending mainly upon the financial stability
and capacity of the employer. The other factors which were taken into
consideration while introducing gratuity scheme were the service condi·
tions prevalent in the other units in the industry and the region, the
H availability or otherwise of the other retiral benefits, the standard of other
B. SINGH v. ENGG. WORKS
181
service conditions etc. The quantum of gratuity was also determined by the A
said factors. [193-A-B]
8. The minimum qualifying service for entitlement to gratuity, rate
at which it was to be paid and the maximum amount payable was determined likewise on the basis of the said factors. It had also to be acknowledged that it could not be denied to the employee on account of his B
misconduct. He could be denied gratuity only to the extent of the financial
loss caused by his misconduct, and no more. (193-C-D]
9. However, there is no fixed concept of gratuity or of the method of
its payment. Like all other service conditions, gratuity schemes may differ C
from establishment to establishment depending upon the various factors
mentioned above, the prominent among them being the financial capacity
of the employer to bear the burden. [193-G]
10. As the object of the statute shows, it was enacted because there
was no Central Act to regulate the payment of gratuity to industrial D
workers except the Working Journalists [Conditions of Service] Miscellaneous Provisions Act, 1955. The Governments of Kerala and West Bengal
had enacted their own statutes for payment of gratuity to workers
employed in establishments in their States. Since the enactment of the
Kerala and West Bengal Acts, some other State Governments had also E
voiced their intention to enact similar legislations in their States. It had,
therefore, become necessary to have a central law on the subject so as to
ensure a uniform pattern on payment of gratuity to the employees
throughout the country. The enactment of a central law was also necessary
to avoid different treatment to the employees of establishments having
branches in more than one State particularly when under the conditions F
of their service, the employees were liable to be transferred from one State
to another. [199-E-F-G]
11. It would be apparent both from its object as well as its provisions
that the Act was placed on the statute book as a welfare measure to
improve the service conditions of the employees. The provisions of the G
statute were applied uniformly throughout the country to all establishments covered by it. They applied to all employees drawing a monthly
salary upto a particular limit in factories, shops and establishments etc.
whether the employees were engaged to do any skilled, semi-skilled, un·
skilled, manual, supervisory, technical or clerical work. [200·D·E]
H
182
SUPREMECOURTREPORTS [1993JSUPP.3S.C.R.
A
12. Tite provisions of the Act were thus meant for laying down
gratuity as one of the minimal service conditions available to all employees
covered by the Act. There is no provision in the Act for exempting any
factory, shop etc. from the purview of the Act covered by it except those
where, the employees are in receipt of gratuity or pensionary benefits which
B are no less favourable than the benefit conferred under the Act. (200-E-F]
13. The payment of gratuity under the Act is thus obligatory being
one of the minimum conditions of service. The non-compliance of the
provisions of the Act is made an offence punishable with imprisonment or
fine. It is settled law that the establishments which have no capacity to give
C to their workmen the minimum conditions of service prescribed by the
Statute have no right to exist. (200-F-G]
D
Bijay Cotton Mills Ltd. v. The State of Ajmer, (1955] 1 SCR 752; M/s.
Crown Alminium Workr l'.· Their Workmen, (1958) SCR 65 and U. Unichoyi
& Ors. v. State of Kera/a, (1962] 1 SCR 946, relied upoIL
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3599/84.
From the Judgment and order dated 243.1983 of the High Court of
Punjab & Haryana at Chandigarh in C.W.P. No. 1102/1980.
E
Jitendra Sharma, Ms. Gunwant Dara, V.C. Mahajan, Mrs. Shashi
F
Kiran and Ms. Anil Katiyar for the appellant.
Raj Birbal and Ashok Lawania for the respondent.
The Judgment of the Court was delivered by
SAWANT, J. These two appeals - one by the Union of India and the
other by the aggrieved employee - are directed against the decision dated
24th March, 1983 of the Punjab & Haryana High Court whereby the High
Court has struck down Section 4 (1] (b) of the Payment of Gratuity Act,
G 1972 [hereinafter referred to as the 'Act'] as being violative of Article 19
[lJ (g) of the Constitution of India.
2. The admitted factual matrix of the case is in a narrow, compass.
Bakshish Singh, the appellant-employee joined the services of the respondent-Mis. Darshan Engineering Works as a Fitter on 2nd March, 1968 and
H resigned from service on 10th December, 1978 after a total period of
B. SINGH v. ENGG. WORKS (SAW ANT, J.]
183
continuous service of more than 10 years. It is not disputed that at the time A
he Joined the employment on 2nd March, 1968, his age was 54 years 3
months, his date of birth being 17th December, 1913. This was known to
the respondent- employer.
3. The Act came into force w.e.f. 21st September, 1972. On the B
employee's resignation w.e.f. 10th December, 1978 which was accepted by
the re!;pondent-employer, he claimed gratuity under Section 4 [1] (b) of
the Act. His claim not having been accepted, he approached the Controlling Authority under Section 7 of the Act. The claim was resisted by the
employer on the ground firstly that the employee was entitled to gratuity
only till the date he reached his superannuation age which was 58 years C
and since he had not completed 5 years of service by the time he .'.lttained
58 years of age, he was not entitled to gratuity under Section 4 [1] of the
Act. Secondly, it was contended that in any case the amount of gratuity
payable to the employee was only for the period upto the superannuation
age and since he was drawing wages of Rs. 230 per month on the day he D
attained the superannuation age, he was entitled to a sum of Rs. 460 only,
being the gratuity calculated at the rate of 15 days' salary per year of service
till the date of superannuation.
4. Both the contentions were negatived by the Controlling Authority
by pointing out that Section 4 (1] provided for payment of gratuity to the E
employee on the termination of his employment after he has rendered
continuous service of not less than five years on the occurrence of any of
the three events viz., [a] on the employee reaching his superannuation age,
or [b] on his retirement or resignation, or [c] on his death or disablement
due to accident or disease. In case of the third event, the qualifying p
continuous service of five years is not necessary. The 'retirement' is defined
by Section 2 [ q] of the Act to mean 'termination of the service of an
employee otherwise than on superannuation.' The first two events are
independent of each other. Since in the present case the employer had not
chosen to superannuate the employee on his attaining 58 years of age and
had continued him in service till the employee himself resigned on 10th G
December, 1978 by which date he had completed more than 10 years of
service, the employee was entitled to the gratuity for the period of his entire
service upto the date of his resignation. The Controlling Authority, therefore, calculated the amount of gratuity due to the employee as Rs. 1782 at
the rate of 15 days' wages per year of service for all the 10 years taking the H
A
B
c
184
SUPREME COURT REPORTS (1993) SUPP. 3 S.C.R.
last drawn wages of Rs. 335 per month as the basis of the said calculation.
This order was challenged by the employer before the Appellate Authority
under the Act. The Appellate Authority confirmed the finding of the
Controlling Authority and dismissed the appeal. In the writ petition filed
before the High Court under Articles 226 and 227 of the Corn;titution, the
High Court confirmed the interpretation placed on Section 4 (lj of the Act
by the Controlling as well as the Appellate Authority and also held that
the age of superannuation is irrelevant when the gratuity is payable under
clause [b] of Section 4 [1) on retirement or resignation, the said clause
being independent cf clause (a) of that section which provided for payment
of gratuity on attaining the age of superannuation. However, the Court held
that the provisions of Section 4 (1) (b) of the Act which entitles an
employee to gratuity on his retirement or resignation after a continuous
service of only 5 years was an unreasonable restriction on the employer to
carry on his business and, therefore, violative of Article 19 (1) (g) of the
Constitution. We should have thought that on the facts of the present case
D the Court was not called upon to decide the alleged unreasonableness of
the qualifying period of 5 years of service for entitlement to gratuity on
retirement or resignation, since as pointed out above the employee had put
in more than 10 years of service. The Court further not only went into the
said question and struck down the provisions of Section 4 (1] (b) but for
E
F
reasons which are not apparent to us, also denied the gratuity awarded to
the employee by the lower authorities even after accepting the finding of
the lower authorities that the employees had put in more than 10 years of
service. It does not appear from the judgment of the High Court whether,
although it found that the five years' qualifying service was unreasonable,
ten years' qualifying service would also be similarly unreasonable according
to it. In fact, the High Court has not thought it necessary to indicate what
according to it would be a reasonable qualifying period of service for
entitlement to the gratuity in case of retirement or resignation by the
employee. Further, if the alleged short period of 5 years was the reason for
holding that the provision in question cast an unbearable burden on the
employer so as to violate his fundamental right under Article 19 [1) (g) of
G the Constitution, by the same reasoning the provision of Section 4 (lj (a)
of the Act, which lays down the same qualifying period to entitle the
employee to the receipt of gratuity on superannuation had also to be, struck
down.
H
5. We may now turn to the reasons given by the High Court in its
(-
......
B. SINGH v. ENGG. WORKS (SAWANT,J.)
185
own words for holding the said provision unconstitutional. The Court has A
held that:
"A gratuity is essentially a retiring benefit payable to a workman
which under the statute [Section 4 (1) (b) of the Act) has been
made payable on voluntary resignation as well. Gratuity is a reward B
for good, efficient and faithful service rendered for a considerable
period. It is necessary that a long minimum period for earning
gratuity in the case of voluntary resignation should bt: prescribed
to curb the tendency on the part of the workmen to change
employment frequently after putting in minimuQt service qualifying
for gratuity. A workman gains experience during his tenure of c
employment. An experienced workman is capable of securing
another employment with better emoluments. He can also be
tempted by other employers with more lucrative salary. The exit
of an experienced workman would surely be a loss for his employer.
It has been aptly observed by their Lordships of the Supreme Court D
in Messrs British Paints [India] Limited's case [supra) that'a longer
minimum in the case of voluntary retirement or resignation makes
1
it probable that the workmen would stick to the company where
they are working. Tha_t is why gratuity schemes usually provide for
a longer minimum in the case of voluntary retirement or
resignation'.
E
Keeping in view the intrinsic object for making provision for
payment of gratuity to a workman on his voluntary resignation and
the ratio of the decisions of the Supreme Court detailed above,
there is no escape from the conclusion that the minimum period F
of qualifying service for five years by a workman for being eligible
for gratuity on voluntary resignation under section 4 (1) (b) of the
Act cannot be stamped sufficient long minimum in the context of
making him stick to his existing employer and it does impose an
unreasonable restriction on the fundamental right of the employer
G
to carry on business and is, therefore, violative of Article 19 (1) (g)
of the Constitution."
6. Besides the decision of this Court in Mis. British Paints [India]
Ltd. v. Its Workmen, [1966) 2 SCR 523, the Court has also relied on other
__.,
decisions of this Court. We may now discuss them here briefly.
H
A
B
186
SUPREME COURT REPORTS [1993) SUPP. 3 S.C.R.
In £tprcss Nc1l'.lpapcrs f Pril'Otc/ Ltd. & A11r. '" The U11io11 of India &
Ors., IJ959) SCR 12 what wa:; questioned was the constitutional \'alidity of
the Working Journalists [Conditions of Scn·iceJ and Miscellaneous
Provisions Act, 1955 and the legality of the 'decision of the Wage Board
constituted thereunder. The impugned Act was passed in order to implement the recommendations of the Press Commission and had for its object
the regulation of the conditions of service of working journalists and other
persons employed in newspaper establishments. Among other things, the
Act provided for the payment of gratuity to a working journalist who had
been in continuous service for not less than 3 years, even when he voluntarily resigned from service. It is with reference to the said minimum period
C of qualifying serVice laid down in the Act that this Court observed that the
said provision was not at all reasonable. The Court observed that a gratuity
is a scheme of retirement benefit and the conditions for its being awarded
had been laid down in the Labour Courts' decisions in this country. The
Court then referred to the Labour Appellate Tribunal's decision in Ahmedabad Municipal Corporation case (1985) LAC 155, 158 where it was
D observed as under:
E
F
"The fundamental principle in allowing gratuity is that it is a
retirement benefit for long services, a provision for old age and
the trend of the recent authorities as borne out from various
awards as well as the decisions of this Tribunal is in favour of
double benefit... We are, therefore, of the considered opinion that
Provident Fund provides a certain measure of relief only and a
portion of that consists of the employees' wages, that he or his
family would ultimately receive, and that this provision in the
present day conditions is wholly insufficient relief and two retirement benefits when the finances of the concern permit ought to
be followed."
The Court then observed that Ahmedabad Municipal Corporation
case [supra] as well as the Nundydrooq Mines Ltd. case (1956) LAC 265,
G 267 were cases where gratuity was to be allowed to the employees on their
retirement. The Court then found that thf: Labour Courts' decisions have,
however, awarded gratuity benefits on the resignation of an employee also.
It then referred to the Cipla Ltd. case [1955] 2 LU 355, 358 and pointed
out that the Court there took into considertion the capacity of the concern
and other factors referred to therein and directed gratui~ on full scale
H which included gratuity on voluntary retirement or resignation by 'an
B.SINGHv. ENGG. WORKS [SAWANT..J.]
187
employee after 15 years' continuous ser\"ice. The Court also rcfared to the A
decision in !11dia11 O.\)"RCll & Acetyle11e Co. Ltd case j 195<11 I LLI 435 where
the Court had observed as follows:
"It is now well-settled by a series of decisions of the Appellate
Tribunal that where an employer company has the financial
capacity the workmen would be entitled lo the benefit of gratuity
in addition to the benefits of the Provident Fund. In considering
the financial capacity of the concern what has to be seen is the
general financial stability of the concern. The factors to be considered before granting a scheme of gratuity are the broad aspects
of the financial condition of the concern, its profit earning capac:ty,
the profit earned in the past, its reserves and the possibility of
replenishing the reserves, the claim of capital put having regard to
the risk involved, in short the financial stability of the concern."
B
c
The Court then observed that in the cases cited by it though the D
gratuity was awarded on the employee's resignation from service, it was
granted only after the completion of 15 years and not merely on a minimum
of 3 years of service as in that case. The Court further observed that
gratuity being a reward for good, long and faithful service rendered for a
considerable period [Vide Indian Railway Establishment Code, Vol. I at p.
614 - Ch. XV, para 1503], there would be no justification for awarding the E
same when an employee voluntarily resigns and brings about a termination
of his service, except in exceptional circumstances. One such exception is
the operation pf the "conscience. clause", the other exception being that the
employee is in continuous service of the employer for a period· of more
than 15 years. The Court then went on to say that where, however, an F
employee voluntarily resigns from service after a period of only 3 years,
there will be no justification whatsoever for awarding him gratuity and any
such provision is certainly unreasonable. The Court also held that the
provision in question imposes an unreasonable restriction on· the
employer's right to carry on business and was liable to be struck down as
unconstitutional.
G
In The Gannent Cleaning Works v. Its Workmen [1962) 1 SCR 711,
the Industrial Tribunal had on a reference under the Industrial Disputes
Act framed a gratuity scheme providing, among others, that on retirement
or resignation of a workman after 10 years' service, 10 days' consolidated H
188
SUPREME COURT REPORTS [1993) SUPP. 3 S.C.R.
A wages for each year's service should be awarded as gratuity. It was assailed
on the ground that the said pro~sion violated the fundamental rights of
the employers under Article 19 [1) (g) of the Constitution. It was also
contended there that no gratuity should be admissible in case of voluntary
retirement or resignation until and unless 15 years' service had been put in
B by the employee. In support of the attack against the said provision,
reliance was placed on the decision in the Express Newspaper case [surpa].
~
This Court explained that the observations made in the Express Newspaper
case [supra] that the employee should be entitled to gratuity on resigning
his post where he had been in continuous service for a period of more than
15 years, were not meant to lay down a rule of universal application in
C regard to all gratuity schemes. The Court negatived the attack and upheld
the minimum qualifying period of service of 10 years prescribed by the
Tribunal for entitlement of gratuity on resignation. The second attack in
that case was against the provision in the scheme that if the workman was
dismissed or discharged for misconduct causing financial loss, he sho\ild
D be deprived of gratuity only to the extent of the said loss. It was contended
that the payment of any amount as gratuity to such a workman was against
the very principle on which gratuity schemes were generally based, gratwty
being in the nature of a retiral benefit for long and meritorious service.
The misconduct is itself a blot on the character of the employee's service
E and that disqualifies him from any claim of gratuity. Repelling the said
contention, the Court observed that on principle, gratuity is earned by an
employee for long and meritorious service. It is difficult to understand why
the benefit thus earned by long and meritorious service should not be
available to him even though at the end of such service, he may have been
: F found guilty of misconduct which entails dismissal. The Court further
observed that gratuity is not paid to the employee gratuitously or merely
as a matter of boon. It is paid to him for the services rendered by him and
when it is once earned it is difficult to understand why it should necessarily
be denied to him whatever may be the nature of misconduct resulting in
his dismissal. In this connection, the Court pointed out that even the
G concerned rule of Provident Fund Scheme shows that the whole Provident
Fund is not denied to the employee even if he is dismissed. It only
authorises certain deductions to be made and the deductions thus made
did not revert to the employer either. The Court did not accept the analogy
which was· sought to be drawn between the definition of 'retrenchment'
H contained in Section 2 [oo] of the Industrial Disputes Act, 1947 and t~e
.....
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B.SINGHv. ENGG. WORKS [SAWANT,J.]
189
retrenchment compensation payable on account of the retrenchment and A
the 'gratuity' payable under the scheme. It pointed out that the two stood
on different footings in regard to the effect of misconduct on the rights of
workmen.
In Management of Wenger & Co. v. Their Workmen, [1963] Supp. 2 B
SCR 862 an industrial dispute arising out of various demands between
various hotel establishments and their workmen was referred for adjudication to the Industrial Tribunal. The Tribunal framed a gratuity scheme
which, among others, granted gratuity to an employee voluntarily resigning
from service after completion of 10 years of service or more. The first
objection to the gratuity scheme in general, was that in view of the ProviC
dent Fund Scheme already introduced in the establishments, it was not
right to burden the employer with the additional liability. The Court
pointed out that this argument had been considered by it on several
occasions earlier and consistently rejected. In this connection, the Court
stated that the object intended to be achieved by the Provident Fund D
Scheme is not the same as the object of the gratuity scheme and in any
case where the financial position of the. employer permits the introduction
of both benefits there was no reason why the employee should not get the
said two benefits. The Court then also pointed out that in dealing with the
financial obligation involved on account of the introduction of a gratuity
scheme, it was necessary to bear in mind that the magnitude of the E
theoretical impact did not matter so much as the extent of the actual impact
of the scheme. There were two ways of looking at the problem of the
burden imposed by the gratuity scheme. One was to capitalise the burden
on actuarial basis and that would only show theoretically that the burden
would be very heavy. The other was to look at the scheme in its practical F
aspect and this would show that broadly no more than 3 to 4 per cent of
the employees retire every year. It was, therefore, desirable that in assessing the financial burden the practical approach should be taken into
account. The Court, however, modified the gratuity scheme by substituting
the minimum qualifying period of 5 years for 2 years contained in the
scheme when the termination of service was caused by the employer and G
also added a clause that in case of termination as a result of the misconduct
which had caused financial loss to the employer, that loss should first be
compensated from the gratuity payable to the employee and the balance,
if any, should be paid to him. As regards the gratuity payable on resignation
of the employee, the Court enhanced the minimum qualifying service from H
190
SUPREME COURT REPORTS [1993) SUPP. 3 S.C.R.
A 5 years to 10 years while maintaining the rate as well as. the ceiling
prescribed by the Tribunal which was 15 days' basic pay for every completed year of service subject to a maximum of 12 months' basic pay.
In M/s. British Paints [India] Ltd. v. Its Workmen [1966] 2 SCR 523,
the Industrial Tribunal had framed a gratuity scheme under which, among
B others, it had fixed 5 years' minimum service in order to enable a workman
to earn gratuity. It also fixed 21 days' basic wage or salary as the quantum
of gratuity for each completed year of service and included dearness
allowance in the definition of the words "basic wage or salary''. This Court
pointed out that the reason for providing a long minimum period of service
C
for earning gratuity in the case of voluntary retirement or resignation is to
see that the workmen did not leave one concern after another after putting
the short minimum service qualifying them for gratuity. A longer minimum
service in the case of voluntary retirement or resignation makes it more
probable that the workmen would stick to the company where they are
working. That is why gratttity schemes usually provide for a longer miniD mum service in the case of voluntary retirement or resignation. In this
connection, the Court referred to the decision in the Express Newspapers
case [supra] where a short minimum service of 3 years for voluntary
retirement of resignation was struck down and to the decision in Gannent
Cleaning Works case [supra] and Wenqer& Co. case [supra] where 10 years'
minimum service was prescribed to enable the employee to claim gratuity
E
if he resigned. The Court then modified the gratuity scheme in that regard
and ordered that in the case of voluntary retirement or resignation, the
- minimum qualifying service for entitlement to gratuity should be 10 years.
The Court also restricted the wage for calculating the gratuity to basic wage
and modified the definition of 'basic wage' as given by the Tribunal on the
F
ground that generally the gratuity is calculated only on basic and secondly,
the gratuity scheme was being introduced in the company for the first time
and the employees were already in receipt of another retiral benefit, viz.,
Provident Fund.
In Delhi Cloth & General Mills Co. Ltd. v. Workmen & Ors. etc., [1969)
G 2 SCR 207, the Industrial Tribunal framed two schemes re!ating to the
payment of gratuity. One related to the DCM and SBM which were under
the same management and the other relating to BCM and ATM which
were under different managements. The Court pointed out as under:
H
"gratuity is not in its present day concept merely a gift made by
/
L'
B.SINGHv. ENGG.WORKS[SAWANT,J.]
191
the employer in his own discretion. The workmen have in course A
of time acquired a right to gratuity on determination of employment provided the employer can afford having regard to his financial condition, to pay it. There is undoubtedly no statutory direction
for payment of gratuity as it is in respect of provident fund and
retrenchment compensation. The conditions for the grant for B
gratuity are, as observed in Bharatkhand Textile Mfg. Co. Ltd's
case (1960) 3 SCR 329, (i) financial capacity of the employer; (ii)
·his profit making capacity; (iii) the profits earned by him in the
past; (iv) the extent of his reserves; (v) the chances of his replenishing them; and (vi) the claim for capital invested by him. But these
are not exhaustive and there may be other material considerations C
which may have to be borne in mind in determining the terms and
conditions of the gratuity scheme. Existence of other retiring
benefits such as provident fund and retrenchment compensation
or other benefits do not destroy the claim to gratuity: its quantum
may however have to be adjusted in the light of the other benefits. D
We may repeat that in matters rel~ting to the grant of gratuity
and even generally in the settlement of disputes arising out of
industrial relations, there are no fixed principles, on the application
of which the problems arising before the Tribunal or the Courts
may be determined and often precedents of cases determined ad E
hoc are utilised to build up claims or to resist them. It would in
the circumstances be futile to attempt to reduce the grounds of
the decisions given by the Industrial Tribunals, the Labour Appellate Tribunals and the High Courts to the dimensions of any
recognised principle.
p
The Court then ref erred to some precedents relating to the grant of
gratuity and by pointing out that the Tribunal in that case had failed to
take into account the prevailing pattern in the textile industry all over the
country, modified the gratuity scheme framed for DCM and SBM by
restricting the payment of gratuity on the basis of basic wages as against G
the consolidated wages as was granted by the Tribunal. The Court also
accepted that the gratuity should not be forfeited in all cases of misconduct. In cases of misconduct where financial loss is occasioned, the
monetary value of the loss only should be deducted from the gratuity
payable to the employee. The Court further reduced the minimum qualify- H
192
SUPREME COURT REPORTS (1993) SUPP. 3 S.C.R.
A
ing service for voluntary retirement to 10 years for 15 years. It must,
however, be stated here that the counsel for the employer had also accepted that the length of the qualifying service should be reduced accordingly.
B
In Straw Board Mfg. Co. Ltd. v. Their Workmen [1977) 3 SCR 91, on
a reference, on 31st October, 1969, the Industrial Tribunal had made an
award framing a gratuity scheme. While the appeal against the award was
pending in the Court, the present Act came into operation. This Court
upheld the 5 years' minimum qualifying period of service for entitlement
to gratuity to workmen who have voluntarily retired or resigned by pointing
C out; that in cases like M/s. British Paints case [supra] the qualifying period
of 10 years was laid down so that the workmen should not leave one
concern for another after putting in short minimum service qualifying for
gratuity. The Court observed that the current conditions must control the
Tribunal's conscience in finalising the terms of the gratuity scheme. Taking
D things as they are in our country presently, there is unemployment at the
level of workers. Colossal unemployment means that the worker will not
leave his employment merely because he has qualified himself for gratuity.
In an economic situation where there is a glut of labour in the market and
unemployment stares the working class in the face, it is theoretical to
contend that employees will hop from industry to industry unless the
E qualifying period for earning gratuity is raised to 10 years. The Court also
pointed out that sense of national consciousness in this field is reflected in
the present Act which fixed the period of 5 years as the qualifying period
for earning gratuity.
F
7. The aforesaid survey of the relevant authorities shows that in
labour jurisprudence the concept of "gratuity" has undergone a metamorphosis over the years. The dictionary meaning may suggest that gratuity is
a gratuitous payment, a gift or a boon made by the employer to the
employee as per his sweet-will. It necessarily means that it is in the
discretion of the employer whether to make the payment or not and also
G to choose the payee as well as the quantum of payment. However, in the
industrial adjudication it was considered as a reward for a long and
meritorious service and its payment, therefore, depended upon the duration and the quality of the service rendered by the employee. At a later
stage, it came to be recognised as a retrial benefit in consideration of the
H service rendered and the employees could raise an industrial dispute for
•
B.SINGHv. ENGG. WORKS(SAWANT,J.)
193
introducing it as a condition of service. The industrial adjudicators recogA
nised it as much. and granted it either in lieu of or in addition to other
retiral benefit/s such as pension or provident fund depending mainly upon
the financial stability and capacity of the employer. The other factors which
were taken into consideration while introducing gratuity scheme were the
service conditions prevalent in the other units in the industry and the
region, the availability or otherwise of the other retiral benefits, the standard of other service conditions etc. The quantum of gratuity was also
determined by the said factors. The recognition of gratuity as a retiral
benefits brought in its wake further modifications' of the concept. It could
be paid even if the employee resigned or voluntarily retired from service.
B
The minimum qualifying service for entitlement to it, rate at which it was C
to be paid and the maximum amount payable was determined likewise on
the basis of the said factors. It had also to be acknowledged that it could
not be denied to the employee on account of his misconduct. He could be
denied gratuity only to the extent of the financial loss caused by his
misconduct, and no more. Thus even before the present Act was placed D
on the statute book, the courts had recognised gi atuity as a legitimate
retiral benefit earned by the employee on account of the service rendered
by him. It became a service condition wherever it was introduced whether
in lieu of or in addition to the other retiral benefit/s. The employees could
also legitimately demand its introduction as such retiral benefit by raising
an industrial dispute in that behalf, if necessary. The industrial adjudicators E
granted or rejected the demand on the basis of the factors indicated above.
It is true that while doing so, the industrial adjudicators insisted upon
certain minimum years of qualifying service before an employee could
claim it whether on superannuation or resignation or voluntary retirement.
p
This was undoubtedly inconsistent with the concept of the gratuity being
an earning for the services rendered. What is, however, necessary to
remember in this connection is that there is no fixed concept of gratuity or
of the method of its payment.