# MANAGEMENT, GHAZIABAD ENGINEERING CO (P) LID v. ITS WORKMEN

- **Citation:** [1970] 1 S.C.R. 622
- **Court:** Supreme Court of India
- **Decided:** 1969-07-18
- **Case number:** Civil Appeal No. 1408 of 1966
- **Bench:** J. C. Shah, G. K. Mitter
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/management-ghaziabad-engineering-co-p-lid-v-its-workmen-4670
- **Pages:** 7

## Headnote

Industrial DiJpute-Gratui1y-Sche1ne framed relating gratuity to consolidated wage not to basic
wcge-Princip/es
governiflg
fra1ninR
of
scheme-Dearness allowance at flat rare-Practice--Court's jurisdiction
under Art. 136-Jnterf('rence 1..,·ith findings of Tribunal.
The Industrial Tribunal on a reference of the disputes between the
appellant comp:uty and its workmen framed a gratuity scheme. -;be gratuity
payable to a workman on termination of employment was to be computed
on the total wage packet of the workman includin~ dearness allowance
which he had last drav.·n.
1·he tribunal also av.·ardcd dearness allowance
at a . flat uniform rate for every l 0 point rise in the cost of Consumer
Price Index.
The Tribun<1l found that the financial position of the company was sound and it had the capacity to bear the additional bu'rden. In
appeal, thi, Court
HELD : ( i) The usual pattern in fixing gratuity is to relate it to the
basic wage or salary and not to consolidated wage. A departure may be
made from the normal rule, if there by some strong evidence or precedent
in the industry, or conduct of the employer or other exceptional circumstances to justify that course.
!n the absence of such evidence, gratuity
should be related to the basic wage and not to the
consolidated
wage
packet. [627 DJ
In the present case it v.·as found that !he financial posilion of the company \\·as sound but there was no evidence that the company \\'as "ma!Ung
abnormally high profits", nOr \\'as there any evidence that in its sister concern or in other engineering concerns in the region there was a practice
of 3\\·arding gr-:l!Uity related to consolidated wages.
Mis. British Paints (India)
Ltd. v. Its Workmen,
[1966] 2 S.C.R.
523, May & Baker (lndic.) Ud. v. Their Workmen, [1961] II L.L.J. 94,
British India Corporation v, The Workmen, (1965) Vol. IO Factory Law
Reports 244, Hindustan Antibiotics
Ltd. v. Their Workmen,
[1967] I.
L.L.J. I 14, The Remington Rand of India Ltd. v. The Workmen. [19681
1 S.C.R. 164. and Delhi Cloth & General Mills Co. Ltd.'" The Workmen
& Ors. [1969j 2 S.C.R. 307, referred to.
(ii) The rise in dearness allo,vancc \\'as not related to the quantum of
ba<>ic v.·a1te or consolidated \\'age; it was a flat uniform rate applicable to
everv v.·orkman.
Therefore, the rise \\'Ould not operate to give the v.·orkman: besides the additional dearness allo\\·ance, a percentage increase in
dearness allo\l;ance already paid as part of the consolidated ,,·age. r625 E-Fl
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(iii) The Tribunal, on appreciation of evidence found that the finanH
cial position of the company \\'as sound.
Assuminc that the Trihunal was
governed by the strict rules prescribed by the Evidence Act, sitting in
appeal with Special Leave Ibis Court \l/OU1d not be justified in interfering
-·
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GHAZ!ABAD BNG!N. CO. V. WORKMEN (Shah, !.)
623
··.vith the finding cf the Tribunal even if it -be open to the criticism that
a part of the evidence relied UP9fl was not in law relevant. [624 F]
.\

## Text

MANAGEMENT, GHAZIABAD ENGINEERING CO (P)
LID.
v.
ITS WORKMEN
July 18, 1969
[J. C. SHAH AND G. K. MITTER, JJ. J
Industrial DiJpute-Gratui1y-Sche1ne framed relating gratuity to consolidated wage not to basic
wcge-Princip/es
governiflg
fra1ninR
of
scheme-Dearness allowance at flat rare-Practice--Court's jurisdiction
under Art. 136-Jnterf('rence 1..,·ith findings of Tribunal.
The Industrial Tribunal on a reference of the disputes between the
appellant comp:uty and its workmen framed a gratuity scheme. -;be gratuity
payable to a workman on termination of employment was to be computed
on the total wage packet of the workman includin~ dearness allowance
which he had last drav.·n.
1·he tribunal also av.·ardcd dearness allowance
at a . flat uniform rate for every l 0 point rise in the cost of Consumer
Price Index.
The Tribun<1l found that the financial position of the company was sound and it had the capacity to bear the additional bu'rden. In
appeal, thi, Court
HELD : ( i) The usual pattern in fixing gratuity is to relate it to the
basic wage or salary and not to consolidated wage. A departure may be
made from the normal rule, if there by some strong evidence or precedent
in the industry, or conduct of the employer or other exceptional circumstances to justify that course.
!n the absence of such evidence, gratuity
should be related to the basic wage and not to the
consolidated
wage
packet. [627 DJ
In the present case it v.·as found that !he financial posilion of the company \\·as sound but there was no evidence that the company \\'as "ma!Ung
abnormally high profits", nOr \\'as there any evidence that in its sister concern or in other engineering concerns in the region there was a practice
of 3\\·arding gr-:l!Uity related to consolidated wages.
Mis. British Paints (India)
Ltd. v. Its Workmen,
[1966] 2 S.C.R.
523, May & Baker (lndic.) Ud. v. Their Workmen, [1961] II L.L.J. 94,
British India Corporation v, The Workmen, (1965) Vol. IO Factory Law
Reports 244, Hindustan Antibiotics
Ltd. v. Their Workmen,
[1967] I.
L.L.J. I 14, The Remington Rand of India Ltd. v. The Workmen. [19681
1 S.C.R. 164. and Delhi Cloth & General Mills Co. Ltd.'" The Workmen
& Ors. [1969j 2 S.C.R. 307, referred to.
(ii) The rise in dearness allo,vancc \\'as not related to the quantum of
ba<>ic v.·a1te or consolidated \\'age; it was a flat uniform rate applicable to
everv v.·orkman.
Therefore, the rise \\'Ould not operate to give the v.·orkman: besides the additional dearness allo\\·ance, a percentage increase in
dearness allo\l;ance already paid as part of the consolidated ,,·age. r625 E-Fl
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(iii) The Tribunal, on appreciation of evidence found that the finanH
cial position of the company \\'as sound.
Assuminc that the Trihunal was
governed by the strict rules prescribed by the Evidence Act, sitting in
appeal with Special Leave Ibis Court \l/OU1d not be justified in interfering
-·
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F
GHAZ!ABAD BNG!N. CO. V. WORKMEN (Shah, !.)
623
··.vith the finding cf the Tribunal even if it -be open to the criticism that
a part of the evidence relied UP9fl was not in law relevant. [624 F]
.\
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1408 of
1966.
Appeal by special leave from the Award dated May 19, 1965
February 23, 1966 of the Addi. Industrial Tribunal, Delhi in
Industrial Dispute No. 109 of 1965.
H. R. Gokhale, G. L. Sanghi and K. P. Gupta, for the. appellant.
Urmila Kapur and 'Bh~fan Ramrakhiani, for the respondents.
The Judgment· qf the Court was delivered by
.
'
. )
Shah, J. By,9rder February 24, 1965 the C:hief Commissioner of Delhi refei:red for adjudication, industrial disputes between the' appellant company a.nd its workmen relating to dearness allowance and introduction· of a scheme of gratuity for the
benefit of the workmen. The Industrial Tribunal, Delhi framed
the following "gratuity scheme" : ·
(1) On death or retire1nent on attaining the age of One month's wages for each
superannuation or on becoming mentally or
year of service or part therephysically unfit for further service.
.- . .
of in excess of six months
subject to a maximum of 15
months' wages. In case of
death of employee the gratuity shall be payable to his
nominee or if there is no
nominee to his legal . heirs.
(2) On termination after five years' service for any
cause whatsoever except by way of retrenchment or resignation.
(3) On resignation after 10 years of service.
15 d°ays Wages for each year of
service or part therrof in
excess of six months' subject
to a 'maximum of 15 months
wages.
15 days wages for each year of
service or part thereof in
excess of six months subject
to a maximum of 15 n1onths
wages.
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Provided that 'if t~rmination is for any misconduct causing
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financial loss to the company, the amount of loss shall be deducted from the gratuity payable. The word 'wages' in this Scheme
shall mean the total pay packet of the workman including dearness which he was last· drawing."
The Tribunal also directed that "all workmen who were
appointed in 1960 or earlier should get dearness allowance at
Rs. 3 for every ten point rise in the cost of Consumer Price Index
base 1960 over and above their existing wages with effect from
~24
SUPREME COURT REPORTS
[1970] l S.C.R
1st January, 1965. In case of workmen appointed after 1960, the
consumer price index base 1960 on the date of his appointment
shall be found out and he shall be given Rs. 3 as
dearness for
every ten point rise in cost of Consumer Price Index base 1960
above it with effect from !st January, 1965 or such later date on
which the limit of 10 point rise in cost of Consumer Price Jnde~
base is crossed." The Tribunal also direr.ted
that dearness
allowance will not be enhanced till the limit of ten
points be
"crossed", and that dearness allowance once granted will not be
reduced till the Consumer Price Index falls by more than 10
points. The Company has appealed to this Court with
special
leave.
Jn the view of the Tribunal. the financial
position of the
company "is very sound" and that it has "financial capacity and,
stability to bear the additional burden of dearness allowance and
of the gratuity scheme." In reaching that conclmion the Tribunal
relied upon a news item published in the newspapers that 2000
Russian Tractors were
being
immediately
imported
by
the
Company even though the agency of the Company was
being
terminated. In relying upon newspaper reports the Tribunal may
have erred. But the conclusion of the Tribunal is founded upon a
review of several other circumstances. It is true that one of the
primary lines of business of the company was of selling tractors
as agents of Russian manufacturers. That agency was in danger of
being terminated because the State Tradini< Corporation had
arranged to take over the agency. But the balance sheets of the
company show that the agency was only one of the many lines
of business and the closure of the agency of th.~ tractor manufacturers was not likely to affect the financial
structure of the
Company seriously. The Tribunal has on appreciation of evidence
come to the conclusion that the financial position of the company
was sound and assuming that the Tnbunal is
governed by the
strict rules prescribed by the Evidence Act, sitting in appeal with
special leave we will not be justified in interfering with the finding
of the Tribunal even if it be open to the criticism that a part of the
evidence relied upon is not in law relevant.
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The company had on its roll 244 workmen out of whom 118
entered employment after 1960. The company has been paying
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to its workmen wages consisting of two components-basic wages
and 50 per cent of the basic wages as dearness allowance. Payment of wages is made in this form to all workmen whether their
employment. commenced before the year 1960 or thereafter. It is
true that before 1960 the company used to make a consolidated
payment without specifying any amount of basic salary or dearH
ness allowance. Since 1960 in every appointment Jetter it was
expressly recited that the emplovee will ~et a consolidated salary
ronsisting of 2/3rd of the consolidated sal&ry as basic wages and
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GHAZIABAD ENGIN. CO. v. WORKMEN (Shah, J.)
625
the balance as dearness allowance. The company has
produced
before the Tribunal 118 such letters of appointment in respect of
all employees employed after the year 1960. In respect of the
employees appointed prior to the year 1960 in the salary register
basic salary and dearness allowance was separately entered though
at the time of appointment of employees there was '° allocation
as basic wages and dearness allowance.
There is no dispute that since the year 1960 there llas been a
rise in the cost of living. The Consumer Price Index for Industrial
Workers which was 100 in 1960, had risen to more than 130 in
1965. The management of the
company granted dearness
allowance to employees in other concerns under its management
even though those other concerns were not financially very sound.
No serious argument has been advanced before us that the rise in
dearness allowance is not justified. The only ground of complaint
is that by relating the cl.earness allowance to the total wage packet
the workmen are given a rise both in the dearness allowance and
in the basic wage.
·
The Tribunal has awarded dearness allowance at the flat rate
of Rs. 3 for every 10 μoint rise in the cost of Consumer Price
Index. The rise is not related to the quantum of basic wage or
consolidated wage. It is a flat uniform rate applicable to every
workman. The Tribunal was of the view that the allocation between the basic wage arid the dearness allowance was "not fair",
but for the purpose of 'the present reference,
the question is
academic because dearness allowance
is
not related to the
quantum of salary that ;the workmen receive. The argument that
the rise will operate to give to the workmen besides the additional
dearness allowance, a percentage increase in dearness allowance
already paid as part of the consolidated wage cannot be accepted.
We do not therefore s~ any reason to interfere with the order
passed by "the Tribunal, with regard to the dearness allowance at
the rate of Rs. 3 for every 10 point rise in the Consumer Price
Index."
Gratuity payable to a' workman on termination of employment
is to be computed on the total wage packet of the workman
including dearness allowance which he has last drawn. This order
makes a departure from tre normal rule which is adopted in industrial awards. In M/s. Bntish Paints (India) Ltd. v. Its Workmen(1)
this Court while introducing a gratuity scheme for the first time
in the concern directed that the amount of gratuity shall be
related to the basfo wa~ or salary and not to the consolidated
wage inrluding dearn~ss '<illowanc~. A similar order was made in
May and Baker (India)' Ltd. v. Their Workmen('). It is true
(!) [1966] 2 S.C.R. 523.
(2) t1961] II L.L
626
SUPREME COURT REPORTS
[ l 970] l S.C.R.
that in British India Corporation v. The Workmen('), an award
made by the Tribunal fixing the quantum of gratuity on gross
salary i.e., basic wage plus dearness allowance was upheld by this
Court. The Court atlirmed that the usual pattern in fixing
the
gratuity is to relate it to the basic wage, but refused to interfere
with the order because the practice in that concern was to fix
gratuity on the consolidated wage.
Similarly, in
Hindustan
Antibiotics Ltd. v. Their Workmen ('), the Tribunal directed the employer to pay gratuity at the
rate of one half of wages for each month including dearness
allowance but excluding house rent and all other allowances for
each completed year of service subject to a maximum of wages
for ten months. In rejecting the claim of the employers for relating gratuity to the basic wage, this Court observed :
"If the industry is a flourishing one, we do no see
any reason why the labour shall not have the benefit of
both the schemes i.e. the employees prvvidenc fund and
the gratuity scheme. Gratuity is an additional form of
relief for the workmen to fall back upon. If the industry
can bear the burden, there is no reason why he shall not
be entitled to both the retirement benefits. The Tribunal
considered all the relevant circumstances : the stability
of the concern, the profits made by it in the past,
ics
future prospects and its capacity and came to the conclusion that, in the concern in question,
the
labour
should be provided with a gratuity ;cheme in
addition
to that of a provident fund scheme. There was no justification to disturb this conclusion."
Jn The Remington Rand of India l.td. v. The Workmen( 3 )
this Court declined to interfere with th•! order of the Tribunal
awardin~ gratuity related to the consolidated
wage
including
dearness allowance "in view of the flourishing nature of the concern, the enormous profits it was making, th.~ -reserves it had built
up as also in view of the fact that it was payin~ gratuity to executives on the basis of consolidated
wages." Jn The Delhi Cloth &
General Mi//.r Co., Ltd. v. The Workmen & Ors.(') this Court
had to consider whether gratuity payable to
workmen in the
textile industry in the Delhi region should be related to the consolidated wage. After referring to the decisions which
were
brou~ht to the notice of the Court, it was observed that :
"It is not easy to extract any principle from these
cases : as
precedents trzy
arc
conflicting. . . . The
----
·-
(I) (J9fi5) Vol. 10 Factory I.aw Rr~on, 244.
()) [1968) I S.C.R.164.
(2) [1967] I L.1.J. 114.
<4\ [1'!6?[ 2 S.C:.R. 307.
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GHAZIABAD EHGJN. CO. v. WORKMEN (Shah, J.)
627
Tribunal has failed to take into account the prevailing
pattern in the textile industry all over the country ....
It is a countrywide industry : and in
that industry,
except in one case to be presently noticed, gratuity has
never been granted on
the basis
0f consolidated
v1ages."
The Court after referring to . the schemes framed in respect
of the industries in Bombay and Ahmedabad and other industries
concluded that "determination of gratuity is not based on any
definite rules. In each case it must depend upon the prosperity of
the concern, needs of the workmen and the prevailing economic
conditions examined in the light of the auxiliary benefits which
the workmen may .get on determination of employment."
There is no clear evidence on the record, and no precedents
have been brought to our notke, to justify a departure from the
normal rule that the quantum of gratuity is related not to the
consolidated wage packet but to the basic wage. A departure may
be made from the normal rule, if there be some strong evidence
or· precedent in the industry, or conduct of the employer or other
exceptional circumstances to justify that course. In the absence of
such evidence, we are of the view that gratuity should be related
to the basic wage and not to the consolidated wage packet. In the
present case it is found that the financial position of the Company
is sound but there is no evidence that the company is "making
abnormally high profits" nor is there any evidence that in its sister
concerns or in other engineering concerns in the region there is a
practice of awarding gra_tuity related to consolidated wages.
It was urged on behalf of the company that even though the
workmen had, in the claim made by them, demanded a scheme of
gratuity benefit at the rate of 15 days wages for each year of
service in case of death or retirement on attaining the age of
superannuation or on' becoming mentally or physica!ly unfit for
further service, the Tribunal had awa,rded gratuity at the rate of
one month's wages for' each year of service subject to a maximum
of 15 months' wages. But the claim was made on the footing that
the wages were to inclJ!de dearness allowance.
When the claim is
not accepted, we cannot hold the workmen bound by the multiples.
We make no modification in clause (1) of the scheme. We
modify the scheme in so far as it relates to the dearness allowance
and direct that for the last sentence of the gratuity scheme the
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following shall be substituted :
"The word 'wages' in the scheme shall mean .basic
salary or emoluments excluding dearness ·allowance and
628
SUPREME COURT REPORTS
(1970] l S.C.R.
other allowances and benefits payable to the workman
Awhich he had last drawn."
Subject to the above modification, the appeal fails and is dismissed. There will be no order as to costs in the appeal.
Y.P.
Scheme modified and appeal dismissed.
B