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Transport Manager, K... v. Pravin Bhabhutlal Sh...

Bombay High Court

Jul 2, 2004

Judgment

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Factual and Procedural Background

This writ petition challenges two administrative orders: the order dated 30 March 2002 passed by the Controlling Authority, Kolhapur in Application (PGA) No. 19 of 2000 allowing an application filed by respondent No. 1, and the order dated 9 October 2003 of the Appellate Authority, Pune in Appeal (PGA) No. 2 of 2003 dismissing the petitioner's appeal.

The factual matrix in brief:

Respondent No. 1 (the workman) was employed on 19 October 1966 and superannuated on 1 December 1999.
Because gratuity was not paid, the workman filed an application before the Controlling Authority on 14 August 2000 claiming gratuity of Rs. 2,71,656/- for 33 years of service. He calculated wages payable as: basic wage Rs. 2,900; dearness allowance (DA) Rs. 6,612 (at 228% of basic); and Rs. 690 towards interim rise — total Rs. 10,192/-.
The recognised union had proposed freezing DA at 182% to assist the petitioner financially; no agreement under the Industrial Disputes Act, 1947 appears to have been executed, but the union and workmen accepted payment at 182%.
A 1977 settlement between the union and the petitioner agreed that gratuity would be payable under the Payment of Gratuity Act, 1972 and specified gratuity at 21 days' wages per year of service for employees whose services cease on account of superannuation, death or physical disability.
The Controlling Authority assessed the evidence and held the workman was entitled to gratuity. It concluded DA should be calculated at 228% (not 182%), awarded Rs. 2,84,583.10 with simple interest at 10% from the due date, and accepted corrected calculations showing additional DA of 37% from 1 July 1999.
The Appellate Authority confirmed the Controlling Authority's findings and (as recorded in the opinion) held that gratuity calculations should take into account DA at 288%.

Legal Issues Presented

Whether the claim for gratuity was time-barred or whether limitation did not arise because the employer failed to give notice as required by sub-section (2) of section 7 of the Payment of Gratuity Act and the proviso to Rule 10.
Whether, where a settlement/agreement provides better terms for gratuity (21 days' wages per year), those terms prevail over the statutory minimum of 15 days' wages under the Payment of Gratuity Act by virtue of section 4(5) of the Act.
Whether gratuity must be computed on the basis of the "wages last drawn" (last actually received) or on "wages payable" (the emoluments payable at the time of retirement, including dearness allowance to which the employee is entitled).
What rate of dearness allowance is to be taken into account for computing gratuity — the alleged frozen rate of 182%, the Controlling Authority's figure of 228%, or the Appellate Authority's recorded figure of 288%.

Arguments of the Parties

Petitioner's Arguments (Mr. Sawant)

The gratuity claim was made under the Payment of Gratuity Act; therefore, it had to be made within the period of limitation prescribed by the Act/Rules.
If gratuity is claimed under the Act it must be calculated under the Act and not under the terms of any settlement; the statutory rate is 15 days per year and not 21 days agreed in the settlement.
Gratuity must be calculated on the basis of the last drawn wages; the workman's last drawn wages were Rs. 8,858 and not the larger "wages payable" figure that includes higher dearness allowance.
Both the Controlling Authority and the Appellate Authority erred in including dearness allowance at 228% (rather than 182%) in the computation; they misread and misinterpreted the law.

Respondent's Arguments (Mr. Topkar)

There is no period of limitation applicable because the second proviso to Rule 10 provides no limitation for filing an application where the employer has failed to give the notice required by sub-section (2) of section 7 of the Act; hence limitation does not arise in this case.
Section 4(5) of the Payment of Gratuity Act recognises an employee's right to better terms under any award, agreement or contract; therefore the settlement providing gratuity at 21 days per year must be given effect to.
Gratuity should be calculated on the wages payable to the workman (which can exceed the wages last drawn), and the workman's calculations were correct to the extent they used wages payable.
Relied on the decisions: Rajendra Deva v. Addl. Labour Commissioner (Kanpur) (1999 (1) CLR 1216) and Karnataka Agro Industries Corporation Ltd., Bellary v. Presiding Officer, Industrial Tribunal, Bangalore (1984 Lab. I.C. 1358) to support the proposition that gratuity must be computed on wages payable (including dearness allowance to which the employee is entitled).

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Rajendra Deva v. Addl. Labour Commissioner (Account) Kanpur-cum-Appellate Authority, 1999 (1) CLR 1216	That "wages payable" for the purpose of computing gratuity include dearness allowance to which the employee is entitled (i.e., wages payable, not merely reduced or last-received wages).	The court cited and relied on this decision to support the conclusion that wages payable would include dearness allowance at the rate of 228% and that gratuity should be computed on wages payable, not merely on the wages last received.
Karnataka Agro Industries Corporation Ltd., Bellary v. Presiding Officer, Industrial Tribunal, Bangalore, 1984 Lab. I.C. 1358	That "wages payable" are wages to which the employee is entitled and are not merely reduced wages or wages unilaterally paid by the employer.	The court relied on this decision to reinforce the view that the employer cannot insist on reduced (frozen) payments where the entitlement (payable wages/DA) has been restored or established; supports computing gratuity on wages payable.

Court's Reasoning and Analysis

The Court proceeded by addressing the principal contentions in sequence and applying statutory text, the 1977 settlement, evidentiary findings and the cited authorities.

Limitation: The Court accepted the respondent's submission that the question of limitation did not arise because the employer failed to give the notice required by sub-section (2) of section 7 of the Payment of Gratuity Act. The second proviso to Rule 10 removes limitation where the employer fails to give that notice; accordingly, the petitioner could not rely on limitation as a defense.
Effect of settlement vis-à-vis statutory minimum: The Court interpreted section 4(5) of the Payment of Gratuity Act to mean that an employee's right to better terms under an award, agreement or contract is preserved and is not taken away by the Act. Because there was an undisputed settlement (1977) under which gratuity was agreed at 21 days' wages per year for qualifying cessations of service, the petitioner could not unilaterally reduce the benefit to the statutory minimum of 15 days.
Ceiling on gratuity: The petitioner argued statutory ceilings limited payable gratuity. The Court noted the Payment of Gratuity (Amendment) by Act 11 of 1998 increased the ceiling to Rs. 3,50,000 (from Rs. 1,00,000) and that the respondent retired in 1999; therefore, the respondent would be entitled to the claimed amount. The Court also reasoned if the settlement imposed no limit, the Act could not impose one because of section 4(5).
Computation basis — "wages last drawn" vs "wages payable": The Court examined sections 4(2) (computation of gratuity) and section 2(s) (definition of "wages") of the Act. While section 4(2) speaks of wages "last drawn," the definition of "wages" includes "all emoluments ... paid or payable" and expressly includes dearness allowance. The Court concluded that the correct approach is to compute gratuity on the wages payable at the time of retirement (i.e., the emoluments to which the employee is entitled), not merely on reduced or last-received payments if those do not reflect what is payable.
Appropriate rate of dearness allowance to be included: The Court relied on the evidence to determine the state of DA entitlement. The record showed the petitioner had at times paid DA higher than 182% (instances of 193% and 203% were recorded), that the 228% DA was to be released in August 2001, and that arrears would be paid. Taking this evidence, the Court concluded that gratuity should include DA at 228% of basic wages (i.e., wages payable included DA at 228%). The Court expressly stated it was supported in that view by Rajendra Deva and Karnataka Agro decisions. (The opinion also records that the Appellate Authority had stated calculations should take into account 288% as dearness allowance; the Court's reasoning and conclusion, however, rest on the evidence establishing entitlement to DA at 228%.)
Result of analysis: Because the Controlling Authority and the Appellate Authority had correctly computed gratuity on the wages payable (including DA at 228%) and because the settlement conferred a 21-day gratuity entitlement preserved by section 4(5), the Court found no error in the impugned orders and dismissed the writ petition.

Holding and Implications

Holding:

Writ petition dismissed.

Implications and immediate consequences:

The orders of the Controlling Authority (granting gratuity calculated on wages payable including dearness allowance at the relevant rate and awarding interest) and the Appellate Authority (confirming that computation) were upheld.
The petitioner is not permitted to rely on limitation or to reduce gratuity to the statutory 15 days where a valid settlement provided 21 days' gratuity per year; the settlement's better terms are enforceable under section 4(5) of the Payment of Gratuity Act.
The Court accepted the Controlling Authority's computation (based on wages payable including DA at 228%) and its award of interest; therefore the respondent's entitlement as assessed below stands affirmed.
No broader, novel legal principle was announced beyond the application of existing statutory provisions and the cited authorities; the decision applies the law to the facts and upholds the administrative determinations. The opinion records "No order as to costs" and directs an expedited certified copy.

Certified copy expedited. Rule discharged. No order as to costs.

Show all summary ...

Rule, returnable forthwith. Mr. Topkar waives service for respondent No. 1. Respondent Nos. 2 and 3 need not be served being formal parties. By consent, Rule called out and heard.

2. This petition has been filed against the order dated 30th March, 2002 passed by the Controlling Authority, Kolhapur in Application (PGA) No. 19 of 2000 allowing the application filed by respondent No. 1 and the order dated 9th October, 2003 of the Appellate Authority, Pune in Appeal (PGA) No. 2 of 2003 dismissing the Appeal preferred by the petitioner.

3. The facts, in brief, are as follows:

4. On 19th October, 1966 respondent No. 1 (hereinafter referred to as “the workman”) was employed with the petitioner undertaking and he was superannuated on 1st December, 1999. As his gratuity was not paid, respondent No. 1 filed an application before the Controlling Authority on 14th August, 2000 claiming gratuity of Rs. 2,71,656/- for 33 years of service. The claim was made on the basis of the monthly wages which were payable to the workman. According to him, he was entitled to basic wages of Rs. 2,900/- plus Rs. 6612/- as dearness allowance calculated at the rate of 228% of the basic wage plus an amount of Rs. 690/- towards interim rise in wages. The total wage payable was Rs. 10,192/-. The recognised Union proposed that the dearness allowance paid to the workers should be frozen at 182% of basic wage in order that the petitioner Undertaking be able to tide over the financial difficulties faced by it. It appears that no agreement was entered into under the provisions of the Industrial Disputes Act, 1947 for a ceiling on the dearness allowance. However, the Union and the workmen stood by the proposal and accepted payment of dearness allowance at 182% of the basic wage.

5. A settlement was entered into between the Union representing the workmen and the petitioner Undertaking in 1977 agreeing that the gratuity would be payable under the Payment of Gratuity Act, 1972. It was further agreed that gratuity would be calculated at 21 days wages per year of service for those employees whose services cease on account of superannuation, death and physical disability. The Controlling Authority after assessing the evidence led before it held that the respondent workman was entitled to gratuity as claimed by him.

6. The Controlling Authority was of the view that the dearness allowance should be calculated at the rate of 228% of basic wages and not 182% as that was the amount payable by way of dearness allowance. According to the Controlling Authority, the respondent workman is entitled to an amount of Rs. 2,84,583.10 by way of gratuity together with simple interest calculated at 10% from the due date. The increase in the amount of gratuity was on account of the fact that the respondent-workman had wrongly calculated the dearness allowance. The respondent by an application had submitted the correct calculations to the Controlling Authority showing the additional dearness allowance payable at the rate of 37% from 1st July, 1999.

7. The Appellate Authority has confirmed the findings of the Controlling Authority and held that the calculations of the gratuity payable to the respondent workman should be made after taking into account 288% as dearness allowance.

8. Mr. Sawant, learned Advocate for the petitioner, submits that the gratuity payable has been claimed under the Act. Therefore, the claim ought to have been made within the period of limitation prescribed. It is further submitted that once gratuity is claimed under the Act, the claim must be calculated under the provisions of that Act and not under the provisions of any settlement. According to him, the workman is entitled to gratuity calculated at the rate of 15 days per year of service and not 21 days per year of service. It is next urged that the calculation of gratuity must be on the basis of last drawn wages. The last drawn wages of the workmen was Rs. 8858/- and, therefore, he was entitled to gratuity computed on the basis of those wages. It is urged that both the Controlling Authority and the Appellate Authority have erred in computing the gratuity on the basis of the last drawn wages to include dearness allowance at the rate of 228% of the basic wage rather than 182%. According to the learned Advocate, both the authorities below have misread the provisions of law and have wrongly interpreted them.

9. Mr. Topkar, learned Advocate for respondent No. 1 workman, submits that there is no period of limitation prescribed under the Act or the Rules framed thereunder. As rightly submitted by Mr. Topkar, the second proviso to Rule 10 provides that there is no limitation for filing an application under Rule 10 if the employer has failed to give notice under sub-section (2) of section 7. sub-section (2) of section 7 of the Act stipulates that the employer shall as soon as the gratuity becomes payable, determine the amount of gratuity and give notice in writing to the person to whom the gratuity is payable specifying the amount of gratuity, irrespective of whether an application has been made by the workman to claim gratuity. The learned Advocate rightly submits, in my view, that the question of limitation does not arise in the present case as the petitioner has failed to give the notice as stipulated in sub-section (2) of section 7 of the Act.

10. Mr. Topkar then submits that the provisions of the Act are wide enough to take into consideration any settlement which may be entered into between the employer and the employees to pay gratuity in excess of 15 days wages per year of service. He submits that under sub-section (5) of section 4 of the Act, the right of an employee to receive better terms of gratuity which are payable under any award or agreement or contract entered with the employer are recognised and, therefore, the agreement by which the employer had agreed to pay at the rate of 21 days wages per year of service must be brought into effect and gratuity is required to be paid in accordance with the agreement. He further submits that the calculations made by the respondent workman are correct as the wages which were last drawn were less than the wages “payable” to the workman and, therefore, the gratuity was required to be calculated on the amount which was payable to the workman. He relies on the judgment of the Allahabad High Court in the case of Rajendra Deva v. Addl. Labour Commissioner (Account) Kanpur-cum-Appellate Authority, 1999 (1) CLR 1216 and the judgment of the Karnataka High Court in the case of Karnataka Agro Industries Corporation Ltd., Bellary v. Presiding Officer, Industrial Tribunal, Bangalore, 1984 Lab. I.C 1358 to submit that the Controlling Authority is required to compute gratuity on the basis of the wages payable to the workman.

11. The submissions on behalf of the petitioner that gratuity, if it is paid under the Payment of Gratuity Act, 1972, can be calculated only at the rate of 15 days wages is unsustainable. Section 4(5) of the Act clearly states that the right of employee to receive better terms of gratuity under any award or agreement or contract with the employer is not taken away by the provisions of the Act. Undisputedly, there is a settlement under which it was agreed that the workman would be paid gratuity at the rate of 21 days wages per year of service. The petitioner, therefore, cannot calculate the gratuity only on the basis of 15 days wages per year of service. Furthermore, the submission of Mr. Sawant that if gratuity is to be calculated as per the Payment of Gratuity Act, there is a ceiling on the gratuity payable and, therefore, the workman was not entitled to gratuity amount of Rs. 2,84,583/- cannot be accepted. The amendment to the Payment of Gratuity Act was made by act 11 of 1998 whereby the limit of payment of gratuity was increased to Rs. 3,50,000/- from the earlier limit of Rs. 1,00,000/-. Admittedly, the respondent workman retired in 1999 and hence he would be entitled to gratuity as claimed by him. In any event, if the settlement does not impose any limit to the gratuity receivable by an employee, the Act cannot impose such a limit in view of section 4(5) of the Act.

12. Now, turning to the main contention of Mr. Sawant that the gratuity ought to have been calculated by considering dearness allowance at the rate of 182% of the basic wage and not at 228% as is claimed by the workman, it would be advantageous to set out certain provisions of the Act. Payment of gratuity is to be computed as stipulated in section 4(2) of the Act, which reads thus:

“4. (2) 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 who is employed in a seasonal establishment and who is not so employed throughout the year, the employer shall pay the gratuity at the rate of seven days' wages for each season.

Explanation: In the case of monthly rated employee, the fifteen days' wages shall be calculated by dividing the monthly rate of wages last drawn by him by twenty-six and multiplying the quotient by fifteen.”

“Wages” have been defined under section 2(s) of the Act as under:

“2. (s) “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 employments 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.”

13. Therefore, a conjoint reading of both these provisions of law shows that the workman is entitled to gratuity calculated at wages last drawn by him. However, since the term ‘wages’ has been defined as “all emoluments ……. paid or payable”, the gratuity must be computed on the basis of the wages payable to him at the time of retirement. There is no dispute that the Fifth Pay Commission recommendations were accepted by the petitioner Undertaking and that payments were to be made on the basis of these recommendations. However, with a view to assist the petitioner Undertaking to tide over its financial difficulties, the workmen had suggested that there should be a ceiling on the dearness allowance at 182% of the basic wages. The evidence on record indicates that the Undertaking had lifted the ceiling on the dearness allowance. The witness for the petitioner has stated that the workmen had been paid a higher dearness allowance than 182%, being 193% and 203% of the basic wage. The dearness allowance at the rate of 228% was to be released in August, 2001. This was because the financial position of the petitioner Undertaking had improved. The witness has also stated that the arrears in respect of dearness allowance would also be released. This being the position, there is no doubt that the gratuity payable to the workman was the basic wages plus the dearness allowance calculated at the rate of 228% of the basic wages. Therefore, the gratuity was required to be computed on the wages payable to the respondent workman and not on the wages last received by him. Wages last drawn would mean the wages last payable to the workman and, therefore, the computation made by the Controlling Authority is correct. I am supported in my view that wages payable would include dearness allowance at the rate of 228% by the judgment in Rajendra Deva (supra). In the case Karnataka Agro Indl. Corp. (supra), the High Court considered the provisions of section 2(rr) which is the definition of “wages” under the Industrial Disputes Act and has come to the conclusion that the wages payable would be the wages to which the employee is entitled and not merely the reduced wages or the wages which an employer unilaterally pays to the worker.

14. Therefore, in my view, the submission made by Mr. Sawant for the petitioner Undertaking cannot be accepted and the impugned orders must be upheld. Writ Petition, therefore, fails. Rule discharged. No order as to costs.

15. Certified copy expedited.

Writ petition dismissed.