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Management of KSRTC Th.Chief Law Officer v. R.Krishna Reddy
Factual and Procedural Background
The appellant, a statutory corporation constituted under the Road Transport Corporation Act, 1950, maintains its own gratuity scheme that awards gratuity at the rate of 30 days’ basic pay for every completed year of service. A settlement dated 17 July 1999 (effective for the period 1 January 1988 to 31 December 1991) provided that the rates of Dearness Allowance (DA) payable to corporation employees would always mirror those sanctioned by the State of Karnataka to its employees, and that any part of DA merged with basic pay by the State would likewise be reckoned for calculating gratuity within the corporation.
On 28 November 1995 the State Government issued an order directing that specific percentages of DA (up to 90%) be added to basic pay for the purpose of computing retirement/death gratuity of Government servants. The appellant later contended that an actual merger of DA into basic pay for its own employees occurred only via a Government Order dated 7 January 1999 (retrospectively from 1 April 1998) and passed two Board resolutions (14 January 1999 and 26 June 1999) reflecting that position.
The respondent, appointed on 4 June 1959 as a conductor and retiring on 30 March 1996 as a traffic inspector, sought gratuity calculated in accordance with the 28 November 1995 Government order. The Assistant Labour Commissioner (Controlling Authority) allowed his claim on 6 February 1998, but the Appellate Authority reversed that decision on 15 September 1998. A writ petition filed by the respondent succeeded before a Single Judge of the High Court on 13 October 2003, and an intra-court appeal by the corporation was dismissed. The corporation then approached the Supreme Court via Special Leave Petition (Civil) No. 24946 of 2005.
Legal Issues Presented
- Whether the Government Order dated 28 November 1995, which added a specified portion of Dearness Allowance to basic pay for gratuity calculation, applied to employees of the appellant-corporation who retired prior to 1 April 1998.
- Whether, under the 1999 settlement clause and Section 4(5) of the Payment of Gratuity Act, 1972, the corporation was bound to compute gratuity on the enhanced “wages” inclusive of the added Dearness Allowance.
Arguments of the Parties
Appellant's Arguments
- The actual merger of DA with basic pay occurred only on 7 January 1999 (retrospectively from 1 April 1998); hence the 28 November 1995 Government order should not be applied to compute gratuity for employees who retired earlier.
- The State Government’s decision on DA merger was not automatically binding on the corporation, which is an independent statutory body.
Respondent's Arguments
- Section 4(5) of the Payment of Gratuity Act preserves an employee’s right to “better terms” under any settlement; therefore gratuity must be computed using the higher wage figure created by the 1995 Government order and the 1999 settlement clause.
- The High Court correctly treated the expressions “addition” and “merger” of Dearness Allowance as synonymous for gratuity purposes, making the 1995 order applicable.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Beed District Central Co-operative Bank Ltd. v. State of Maharashtra & Ors., 2006 (10) SCALE 40 | The Payment of Gratuity Act is a beneficial social-welfare statute; where two views are possible, interpretation favouring the workman may be preferred, though benefits cannot be granted where not legally due. | Used to justify construing the disputed provisions in a manner favourable to the employee while ensuring consistency with statutory limits. |
Court's Reasoning and Analysis
The Supreme Court began by analysing the statutory framework of the Payment of Gratuity Act, 1972. Section 4(2) fixes gratuity at 15 days’ wages per completed year of service, Section 4(3) imposes a monetary ceiling, and Section 4(5) safeguards the employee’s entitlement to superior terms under any settlement or agreement. The corporation’s own scheme in fact provided for 30 days’ wages per year, hence delivering a higher benefit.
Under Section 2(s) of the Act, “wages” expressly includes Dearness Allowance. Consequently, once the State Government order of 28 November 1995 directed that up to 90% of DA be added to basic pay for gratuity purposes, the definition of “wages” for corporation employees—whose DA was required to track State employees under the 1999 settlement—automatically increased.
The Court endorsed the High Court’s view that the linguistic distinction between “adding” and “merging” DA was immaterial; both expressions yielded the same economic outcome when computing gratuity. It rejected the appellant’s claim that the 1995 order was irrelevant until the 7 January 1999 merger, holding that Clause 5 of the settlement required parity with State Government scales “from the same date.” Therefore, employees retiring on or after 28 November 1995 were entitled to have the specified percentage of DA included in their wage calculation for gratuity.
The Court further observed that the corporation’s scheme and the Act were not inconsistent: both permitted better terms, and the settlement specifically contemplated the inclusion of merged DA for gratuity computation. This reasoning, combined with the beneficial nature of the statute (reinforced by the Beed District Central Co-operative Bank precedent), led the Court to dismiss the appellant’s technical objections.
Holding and Implications
APPEAL DISMISSED WITH COSTS (₹10,000)
By affirming the High Court, the Supreme Court confirmed that employees of the appellant-corporation who retired on or after 28 November 1995 are entitled to gratuity calculated on basic pay plus the prescribed percentage of Dearness Allowance, as mandated by both the Government order and the settlement clause. The decision secures parity between State Government employees and corporation employees in gratuity computation but does not establish a new legal precedent beyond a contextual application of the Payment of Gratuity Act and settled principles of beneficial interpretation.
J U D G M E N T [Arising out of S.L.P. (Civil) No. 24946 of 2005] S.B. SINHA, J :
Leave granted.
Appellant is a statutory corporation constituted under the Road Transport Corporation Act, 1950. It has its own scheme in terms whereof gratuity is being paid at the rate of 30 days' basic pay for each completed year of service. Government Servants are, however, entitled to gratuity calculated on the basis of 15 days' basic pay for each completed year of service. Such is the position also under the Payment of Gratuity Act, 1972 (for short
"the Act").
Disputes and differences having arisen by and between the workmen of the Corporation and the management, a settlement was arrived at on 17.07.1999. The said settlement was valid for the period 1.01.1988 and 31.12.1991. It expired on 31.12.1991, Clause (5) whereof postulated:
"Dearness Allowance The rates of Dearness allowance shall be on par with the rates sanctioned by the State Government to its employees from time to time and from the same date. The enhanced Dearness Allowance shall be paid in cash.
If during the currency of this settlement, the Government of Karnataka were to merge any portion of Dearness Allowance presently being paid to its employees, that portion of the Dearness Allowance so merged will also be reckoned at appropriate levels by the corporation for determining the Dearness Allowance, House Rent Allowance, City Compensatory Allowance and Gratuity payable to the employees of the corporation, but shall not be reckoned for other purposes."
The State of Karnataka merged a part of the Dearness Allowance with the basic pay wherefor a Government Order being Government Order No. FD 27 SRS 95 was issued on 28.11.1995 which is to the following effect:
"The question of revision of pensionery benefits in respect of Government Servants has been examined by Government in the light of the recommendations made by the Karnataka State Fourth Pay Commission and the decision taken by the Government of India on the Interim Recommendations of the Fifth Central Pay Commission. Accordingly, the following orders are issued.
2. Government are now pleased to order that Dearness Allowance sanctioned upto the Average All India Consumer Price Index (A.I.C.P.I.) 1201.66 in Government order No. FD 29 SRP 93, dated 30th October, 1993 as indicated below, shall be reckoned as emoluments for the purpose of retirement gratuity/ death gratuity under the Karnataka Civil Services Rules in respect of State Government Employees who retire or die on or after 28th November, 1995:
Pay Range Rate of Dearness Allowance to be added to pay for calculating gratuity
1. Basic pay upto 3500 per month 90% of basic pay
2. Basic pay between Rs. 3401 and upto Rs.
600 per month 67% basic pay subject to minimum of Rs. 3150 per month
3. Basic pay above Rs.
6000 per month 58% of basic pay subject to minimum of Rs. 4020 per month"
The appellant, however, contends that actual merger of pay had taken place on 7.01.1999 with retrospective effect from 1.04.1998 wherefor a Government Order was issued. The Board of Directors of the appellant in its meeting held on 14.01.1999 adopted a resolution in the following terms:
"The Principal Secretary, Finance Department stated that the provisions of the Gratuity Act, 1972 has to be followed as far as the ceiling on payment of gratuity is concerned. The legal position in this regard may be examined in the context of the settlements reached and appropriate necessary action taken.
After considering the matter in detail the Board of Directors resolved as hereunder:
Resolution No. 7808 Approval is accepted for the payment of gratuity to the employees of the Corporation from 28.11.1995 in terms of the Gratuity Act 1972 if it is more advantageous."
The Board of Directors of the appellant also adopted the following resolution on 26.06.1999:
"Approval is accorded to merge the Dearness Allowance as contemplated in Government Order No. FD 48 SRP 98 dated 7.1.1999 into the Basic Pay of the employee of the Corporation w.e.f. 1.04.1998 by treating the same as Basic D.A. for calculation of Gratuity."
The dispute between the parties centers round the issue as to whether for the purpose of computation of the amount of gratuity, the order dated 28.11.1995 would be attracted or not.
Respondent herein was appointed on 4.06.1959 as a conductor. He retired as traffic inspector on 30.03.1996. He claimed gratuity in terms of the said Government Order dated 28.11.1995. The same having been denied to him, he filed an application before the Assistant Labour Commissioner and Controlling Authority under "the Act". By an award dated 6.02.1998, he was held to be entitled thereto. An appeal thereagainst was preferred by the appellant. The Appellate Authority in terms of its order dated 15.09.1998 allowed the said appeal. The respondent filed a writ petition before the High Court. A learned Single Judge by reason of a judgment and order dated 13.10.2003 allowed the said writ petition inter alia holding:
"In so far as the other contention that the Government Order only speaks adding Dearness Allowance to the basic pay wherein Clause to the basic pay wherein Clause (5) refers to merger of Dearness Allowance with basic pay is concerned, I do not find any substance. The word 'adding of basic pay', 'adding of Dearness Allowance' or the word 'merger of Dearness Allowance' with the basic pay are synonymous. There is no difference in meaning with those two phrases. The ultimate result is the same if such hyper technical interpretation of these phrases is accepted it would result in great injustice to one of the parties to the contract. Moreover, they are not words used in any status. They are words used by the Government at one place and the respondents in their order. Moreover, in the subsequent order passed by the KSRTC they have understood the said word as merger and has given benefit to its employees. Under the circumstance, I do not find any merit in the said contention also."
An intra-court appeal filed thereagainst by the appellant was dismissed.
Mr. G.E. Vahanvati, learned Solicitor General appearing on behalf of the appellant, principally raised two contentions in support of this appeal:
(i) The actual merger having taken place on 7.01.1999 upon revision of the scale of pay, the purported settlement dated 28.11.1995 could not have been construed differently.
(ii) In any event, the purported merger of Dearness Allowance in respect of the employees of the State was not binding on the Corporation.
Mr. L. Nageshwara Rao, learned senior counsel appearing on behalf of the respondent, on the other hand, submitted that the amount of gratuity is required to be calculated in terms of section 5 of "the act" and in that view of the matter the rate prescribed therefor must be computed at par with the settlement. The High Court, the learned counsel would contend, cannot be said to have committed any illegality in arriving at the said finding.
The Act was enacted to provide for a scheme for payment of gratuity to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, etc. and for matters connected therewith or incidental thereto. Gratuity is payable in terms of section 4 of "the act" to an employee inter alia on his superannuation after he has rendered continuous service for not less than five years.
sub-section (2) of section 4 of "the act" envisages that for every completed year of service, the employer shall pay gratuity to an employee at the rate of 15 days' wages based on the rate of wages last drawn by the employee concerned. Sub-section (3) of Section 4, however, puts a ceiling on the amount of gratuity being Rs. three lakhs and fifty thousand. Sub- section (5) of Section 4 inter alia provides that the provisions contained therein shall not affect the right of an employee to receive better terms of gratuity under any award or agreement or contract with the employer.
What is, therefore, payable by way of gratuity in terms of the scheme was 30 days wages for each completed year of service.
'Wages' has been defined in section 2(s) of "the act" in the following terms:
""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."
We have noticed hereinbefore that the Government of Karnataka in terms of Government Order dated 28.11.1995 inter alia directed that 90% of Basic Pay to be added to pay for calculating gratuity. If the basic pay of an employee was upto Rs. 3500/- per month and was drawing a Dearness Allowance of Rs. 2000/-, what was to be added was the 90% of the Dearness Allowance which was being paid. If 90% of the Basic Pay as Dearness Allowance is to be added to the basic pay, the employee became entitled to higher wages on the basis thereof. It is in that sense the question of application of the merger of Dearness Allowance with the scale of pay arose for all intent and purport. As was rightly held by the learned Single Judge, different terminologies used did not make any material difference. Section 4 of "the Act" itself contemplates implementation of a settlement. Settlement, therefore, entered into by and between the parties was required to be interpreted having regard to the intention of the parties. What was contemplated by the parties was that the rates of Dearness Allowance would be at par with the rate sanctioned by the State Government to its employees from time to time and from the same date. It was never contemplated that a different amount of gratuity shall be payable to an employee who retires prior to the revision of scale of pay although the terms of the settlement are applicable to his case.
What was necessary to be taken into account was the merger of any portion of the Dearness Allowance with pay which was being paid to its employees. In such an event that portion of the Dearness Allowance was also to be reckoned at appropriate level by the appellant for determining the quantum of Gratuity payable to its employees. The said settlement was arrived at for calculating amount of gratuity payable to the employees of the appellant and not for any other purpose.
It is, therefore, not a case where the appellant could legitimately raise a contention that any enhancement in the emoluments to its employees by the State would not automatically enhance the emoluments of the employees of the appellant. It has been contended before us that the effect of the merger and addition of Dearness Allowance would be different. It may be so. But, having regard to the fact of the present matter and the definition of 'wages' under "the Act", we need not go into the said question.
We have noticed hereinbefore that the contention may ordinarily be applicable to a case of merger of the basic pay vis-`-vis adding of Dearness Allowance to basic pay, but, herein the same would not make any substantive difference for the purpose of payment of gratuity keeping in view the definition of "wages" contained in section 2(s) of "the act". It is not a case where the scheme of the Corporation and the provisions of "the Act" are inconsistent with each other.
In Beed District Central Co-operative Bank Ltd. v. State of Maharashtra & Ors. [2006 (10) SCALE 40], it was laid down:
"Undoubtedly, the Payment of Gratuity Act is a beneficial statute. When two views are possible, having regard to the purpose, "the Act" seeks to achieve being a social welfare legislation, it may be construed in favour of the workman. However, it is also trite that only because a statute is beneficent in nature, the same would not mean that it should be construed in favour of the workmen only although they are not entitled to benefits thereof."
For the reasons aforementioned, we are unable to agree with the submissions made by the learned Solicitor General that the consequences of merger in a case of this nature shall be different in case of addition to the Dearness Allowance in the scale of pay.
Keeping in view the facts and circumstances of this case, we are of the opinion that it is not a case where this Court should take a view different from that of the High Court. The Appeal is dismissed with costs. Counsel's fee assessed at Rs. 10,000/-.
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