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Shri Digvijay Woollen Mills Ltd. v. Shri Mahendra Prataprai Buch .
Factual and Procedural Background
Both appeals concern monthly-rated employees who sought additional gratuity under Section 4(2) of the Payment of Gratuity Act, 1972. Each appellant is a public limited company; each respondent is a former employee.
- Civil Appeal No. 1088 of 1976 (Shri Digvijay Woollen Mills Ltd. v. Mahendra Prataprai Buch) – The employee retired after 19 years of service. The company paid gratuity by treating fifteen days’ wages as exactly half of a 30-day month. The Controlling Authority and, in appeal, the Appellate Authority directed recalculation on the basis that the employee worked 26 days a month. The Gujarat High Court summarily dismissed the company’s Article 227 petition; special leave followed.
- Civil Appeal No. 480 of 1977 (Maharana Mills Ltd. v. Gopaldas Ladhabhai Kakkad) – The employee resigned after 22 years of service. The employer calculated gratuity by dividing monthly wages by 30. The statutory authorities again ruled that wages should be computed on a 26-day working month, and the High Court summarily affirmed. A certificate granted by the High Court brought the matter to the Supreme Court.
Legal Issues Presented
- When Section 4(2) of the Payment of Gratuity Act speaks of “fifteen days' wages based on the rate of wages last drawn”, should fifteen days’ wages of a monthly-rated employee be calculated:
- (a) as one-half of the monthly wage (i.e., treating a month as 30 days), or
- (b) by first determining the daily wage on the premise that the employee earns his monthly wage in 26 working days and then multiplying that daily wage by fifteen?
Arguments of the Parties
Appellants’ Arguments (Employers)
- The statute does not distinguish between working and non-working days; a month naturally contains 30 days, so fifteen days’ wages must equal one-half of the monthly wage.
- The controlling and appellate authorities adopted an artificial basis (26 days) unsupported by the Act.
Respondents’ Arguments (Employees)
- In industrial practice monthly wages are earned over 26 working days; Sundays and paid holidays are excluded from working days.
- For fair computation, daily wage should be monthly wage ÷ 26; fifteen days’ wages must therefore be daily wage × 15.
- The approach adopted by the authorities reflects economic reality and aligns with wage-fixing practice and decisions such as Delhi Cloth and General Mills Co. Ltd. v. Workmen.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Delhi Cloth and General Mills Co. Ltd. v. Workmen, AIR 1970 SC 919; (1969) 2 SCR 307 | Explanation that “average of the basic wage” equals (wage earned ÷ actual working days) × 26 when computing gratuity. | Used illustratively to show that treating monthly wages as earned over 26 working days is neither unique nor unreasonable, supporting the authorities’ approach. |
Court's Reasoning and Analysis
The Supreme Court examined the statutory text and the factual context:
- Section 4(2) requires payment of gratuity at the rate of fifteen days’ wages based on wages “last drawn”. The Act does not prescribe how a monthly wage is to be reduced to daily wage.
- The Gujarat High Court reasoned that workers are never allowed to work 30 days a month; wage-fixing bodies uniformly assume 26 working days when setting monthly wages. Therefore, monthly wage represents remuneration for 26 working days.
- The Supreme Court found this rationale “legitimate and reasonable”. Although “month” ordinarily denotes 30 days, applying a 26-day divisor in factories reflects industrial reality and is not perverse.
- The Court noted that its own earlier judgment in Delhi Cloth and General Mills approved the same 26-day methodology, reinforcing the High Court’s view.
- Given the absence of any statutory prohibition and in light of established wage-fixing practice, the Court saw no reason to interfere with the concurrent findings of the statutory authorities and the High Court.
- Other High Court decisions and cases under different statutes (e.g., Minimum Wages Act) were deemed irrelevant for interpreting Section 4(2) of the Payment of Gratuity Act.
Holding and Implications
Appeals Dismissed.
The Supreme Court affirmed the orders of the Controlling and Appellate Authorities and the Gujarat High Court. Consequently, gratuity for monthly-rated employees must be computed by:
- Deriving daily wage as monthly wage ÷ 26; and
- Calculating fifteen days’ wages as daily wage × 15.
Immediate Effect: Each respondent is entitled to the additional gratuity already directed, with costs as specified by the Court.
Broader Implications: While the judgment resolves the controversy in Gujarat and these specific appeals, it does not create a novel legal doctrine; it endorses a pragmatic interpretation already followed in industrial wage practice.
A.C Gupta, J.— A common question arises for consideration in these two appeals relating to the mode of calculating fifteen days' wages of a monthly rated employee under Section 4(2) of the Payment of Gratuity Act, 1972 (hereinafter referred to as “the Act”). Section 4(2) provides:
“For every completed year of service or part thereof in excess of six months, the employer shall pay gratuity to an employee at the rate of fifteen days' wages based on the rate of wages last drawn by the employee concerned:
Provided that in the case of a piece-rated employee, daily wages shall be computed on the average of the total wages received by him for a period of three months immediately preceding the termination of his employment, and, for this purpose, the wages paid for any overtime work shall not be taken into account:
Provided further that in the case of an employee employed in a seasonal establishment, the employer shall pay the gratuity at the rate of seven days' wages for each season.”
“Wages” has been defined in Section 2(s) of the Act as follows:
“Wages” means all emoluments which are earned by an employee while on duty or on leave in accordance with the terms and conditions of his employment and which are paid or are payable to him in cash and includes dearness allowance but does not include any bonus, commission, house rent allowance, overtime wages and any other allowance.
2. It is not necessary to state the facts in any great detail. In both cases the respondent was a monthly-rated employee and the appellant, a public limited company, was his employer. In Civil Appeal No. 1088 of 1976 (Shri Digvijay Woollen Mills Limited — appellant v. Shri Mahendra Prataprai Buch — respondent) the respondent ceased to be an employee on attaining the age of superannuation after completing 19 years of service. The appellant company calculated the amount of gratuity payable to him on the basis that fifteen days' wages was half of the monthly wages last drawn by him. The respondent demanded an additional sum as gratuity on the ground that his monthly wages should be taken as what he got for 26 working days, his daily wages should be ascertained on that basis and his fifteen days' wages worked out accordingly, not by just taking half of his wages for a month of 30 days or fixing his daily wages by dividing his monthly wages by 30. The Controlling Authority under the Act accepted the respondent's contention and his decision was affirmed by the appellate authority. A Division Bench of the High Court of Gujarat at Ahmedabad summarily dismissed the petition under Article 227 of the Constitution made by the appellant company challenging the decision of the authorities under the Act. The learned Judges however gave reasons in support of the order made. The appeal before us is by special leave.
3. In Civil Appeal No 480 of 1977 (Maharana Mills Limited — appellant v. Shri Gopaldas Ladhabhai Kakkad — respondent) the respondent resigned his job after a little over 22 years of service. The appellant company paid him gratuity calculating his daily wages by dividing his monthly wages by 30 and computing fifteen days' wages on that basis. Here also the respondent claimed an additional sum as gratuity and the basis of the claim was the same as in the other appeal. The Controlling Authority accepted the respondent's contention and the appellate authority affirmed his decision following the view taken by the Gujarat High Court in the other case. In this case also the Gujarat High Court summarily rejected the petition made by the appellant company challenging the decision of the authorities under the Act. This appeal however is brought on a certificate granted by the High Court.
4. In dismissing the petition in Digvijay Woolen Mills case the Division Bench of the Gujarat High Court observed as follows:
“The employee is to be paid gratuity for every completed year of service and the only yardstick provided is that the rate of wages last drawn by an employee concerned shall be utilised and on that basis at the rate of fifteen days' wages for each year of service, the gratuity would be computed. In any factory it is well known that an employee never works and could never be permitted to work for all the 30 days of the month. He gets 52 sundays in a year as paid holidays and, therefore, the basic wages and dearness allowance are always fixed by taking into consideration this economic reality .... A worker gets full month's wages not by remaining on duty for all the 30 days within a month but by remaining on work and doing duty for only 26 days. The other extra holidays may make some marginal variation into 26 working days, but all wage boards and wage fixing authorities or tribunals in the country have always followed this pattern of fixation of wages by this method of 26 working days.”
5. The view expressed in the extract quoted above appears to be legitimate and reasonable. Ordinarily of course a month is understood to mean 30 days, but the manner of calculating gratuity payable under the Act to the employees who work for 26 days a month followed by the Gujarat High Court cannot be called perverse. It is not necessary to consider whether another view is possible. The High Court summarily dismissed the petition of the appellant in both the appeals before us and upheld the decision of the authorities under the Act. We are not inclined to interfere with the decision of the High Court because it seems to us that the view taken by the authorities is not in any way unreasonable or perverse. Incidentally, to indicate that treating monthly wages as wages for 26 working days is not anything unique or unknown, we may refer to a passage from the judgment of this Court in Delhi Cloth and General Mills Company Ltd. v. Workmen AIR 1970 SC 919, (1969) 2 SCR 307, (1969) 2 LLJ 755 which disposed of several appeals arising out of an award made by the Industrial Tribunal, Delhi. In the award, schemes were framed relating to the payment of gratuity. The expression “average of the basic wage” occurring in the schemes was explained by this Court as follows:
“It was also urged by Mr Ramamurthi that the expression ‘average of the basic wage’, in the definition of ‘wages’ in clause 4 of the schemes is likely to create complications in the implementation of the schemes. He urged that if the wages earned by a workman during a month are divided by the total number of working days, the expression ‘wages’ will have an artificial meaning and especially where the workman is old or disabled or incapacitated from rendering service, gratuity payable to him will be substantially reduced. We do not think that there is any cause for such apprehension. The expression ‘average of the basic wages’ can only mean the wage earned by a workman during a month divided by the number of days for which he has worked and multiplied by 26 in order to arrive at the monthly wage for the computation of gratuity payable. Counsel for the employers agree to this interpretation.”
6. In the view we take, we do not find it necessary to consider the decisions of some of the High Courts cited at the Bar taking one view or the other on the question involved in these appeals; also, the decisions based on some provisions of the Minimum Wages Act and other statutes which were relied on by either side are in our opinion not relevant on the question of computation of fifteen days' wages under Section 4(2) of the Payment of Gratuity Act.
7. The appeals are dismissed, in Civil Appeal No. 480 of 1977 with costs, in Civil Appeal No. 1088 of 1976, this Court while granting special leave on September 22, 1976 had directed the appellant to pay the costs of the appeal in any event — accordingly respondent Mahendra Prataprai Buch will be entitled to his costs.
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