Messrs. Brahmachari Research Institute vs Its Workmen

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No.4 of 1958

Decision Date: 16 October 1959

Coram: K.N. Wanchoo, Bhuvneshwar P. Sinha, P.B. Gajendragadkar

In this case the Supreme Court of India rendered its judgment on 16 October 1959 in the matter styled Messrs Brahmachari Research Institute versus its Workmen, the bench being composed of Justices K N Wanchoo, Bhuvneshwar P Sinha and P B Gajendragadkar. The appeal, recorded as Civil Appeal No 4 of 1958, was filed by special leave against the decision dated 19 September 1956 of the Labour Appellate Tribunal of India, Calcutta, in Appeal No Cal 235/56. The petitioner was the Brahmachari Research Institute, a partnership engaged in the manufacture of pharmaceutical products, while the respondents were the workmen who had been retrenched from the institute. The dispute centered on whether the retrenched workmen were entitled to receive, in addition to the compensation prescribed under section 25F of the Industrial Disputes Act, 1947, a gratuity payable under a scheme that had been modified by an industrial tribunal award dated 18 August 1952; the issue also involved the interpretation of section 25J of the same Act, which provides that a workman may claim only one of the two benefits, whichever is more advantageous. The headnote of the reported judgment summarizes that the workmen, having already received compensation in accordance with section 25F, claimed a further gratuity under the award which declared that “the following gratuity scheme shall be for cases of retrenchment or termination of service by the company for any reason other than misconduct or for cases of resignation with the consent of the management.” The Appellate Tribunal originally held that the gratuity specified in the award was a benefit distinct from the compensation under section 25F. The Supreme Court, however, held that a proper construction of the award reveals that the amount termed “gratuity” was in substance the compensation required by section 25F, and therefore the workers were entitled to only one payment, the more favourable of the two, as mandated by section 25J; the Court emphasized that Parliament did not intend a workman to receive dual compensation for the same retrenchment event. Counsel for the appellant were B Sen, S N Mukherjee and B N Ghose, while counsel for the respondents was Sukumar Ghose, and the judgment was delivered by Justice Wanchoo. The factual backdrop disclosed that the appellant had a long-standing gratuity scheme which had been revised by the award of 18 August 1952, and that revised scheme remained operative. As the financial condition of the appellant deteriorated and consequently, it was

The appellant found itself forced to dismiss a considerable number of its workmen because of deteriorating financial conditions. Consequently, it petitioned the Appellate Tribunal for permission to retrench eighty-nine workmen, invoking section twenty-two of the Industrial Disputes (Appellate Tribunal) Act, No. XLVIII of 1950. The Tribunal, after consideration, authorised retrenchment of only seventy-five workmen, refusing permission for the remaining fourteen. Having obtained the limited authorisation, the appellant proceeded to terminate the employment of the authorised workers and paid each of them compensation prescribed in section twenty-five F of the Industrial Disputes Act, 1947. Subsequently, the dismissed employees, through the trade union representing the appellant’s workforce, raised a dispute alleging entitlement to gratuity under the award that governed the employer’s gratuity scheme. The dispute was referred on 23 March 1956 to the Second Industrial Tribunal, West Bengal. The Tribunal was asked to decide whether the seventy-five retrenched employees listed were entitled to gratuity in addition to the benefits provided under section twenty-five F. The Tribunal, after hearing the matter, concluded that the workers were only entitled to the relief specified in section twenty-five F and that no additional gratuity could be claimed under the award. The workmen appealed this conclusion to the Appellate Tribunal, which set aside the lower Tribunal’s finding. The Appellate Tribunal held that the gratuity stipulated in the award was distinct from a retrenchment benefit and therefore payable. The appellant then sought special leave to appeal the Appellate Tribunal’s order, obtained such leave, and consequently the present appeal before this Court arose.

The Court has previously examined the general question of whether gratuity under an award may be claimed in addition to statutory retrenchment compensation. That issue was considered in The Indian Hume Pipe Company Limited v. Its Workmen, a judgment delivered today. That earlier decision observes that special considerations may emerge from the specific terms of an agreement or award, and it is precisely those considerations that must be addressed in the present appeal. Accordingly, the sole issue for determination is whether, under the terms of the award, the retrenched workers are entitled to the gratuity specified therein in addition to the benefit prescribed by section twenty-five F of the Act. For clarity, the Court reproduces the relevant portion of the award, which provides that a gratuity scheme shall apply in cases of retrenchment, termination for reasons other than misconduct, or resignation with management’s consent. The award states that gratuity shall be payable up to a maximum of fifteen months’ basic pay. It further provides that eligibility requires at least one year of service and that the basic pay for calculation shall be the average of the employee’s last twelve months’ basic salary. The award also provides that no gratuity shall be payable before completion of one year of service.

It was recorded that the Award expressly excluded any entitlement to gratuity for persons who were discharged on grounds of misconduct. The Award further provided that, in the event of an employee’s death, the employee’s widow, children, or other dependents would receive gratuity calculated on the same basis as described for other qualifying situations. From these provisions, the Award emerged as a composite scheme that identified gratuity under three distinct circumstances: (i) retrenchment, (ii) termination of service for any reason other than misconduct, and (iii) resignation with the consent of the management. Although the term “gratuity” was used for all three categories, the Court observed that the label assigned to the payment was not determinative; rather, the substance of the payment had to be examined. In the specific context of retrenchment, the Court found that the payment termed “gratuity” was in reality nothing more than compensation for the loss of employment. Consequently, a workman who was retrenched could invoke the Award to claim only this compensatory amount and could not rely on the other two categories of gratuity provided for termination without misconduct or consensual resignation. Therefore, a fair and reasonable construction of the Award led to the conclusion that the retrenched employee’s right was limited to compensation for retrenchment, not to a gratuity properly so called.

The Court then turned to the definition of “retrenchment” as set out in section 2(oo) of the Act, which described retrenchment as the termination by an employer of a workman’s service for any reason whatsoever, except when such termination amounted to punishment by disciplinary action and did not include (a) voluntary retirement, (b) retirement on reaching superannuation age when the employment contract contemplated such retirement, or (c) termination on the ground of continued ill health. When this statutory definition was compared with the language of the Award, the Court observed that the Award addressed not only genuine retrenchment but also the situations excluded from the statutory definition. The Award’s reference to “cases of resignation with the consent of the management” corresponded to the statutory exclusions (a) and (b), while the phrase “termination of service by the company for any reason other than misconduct” covered the statutory exclusion (c). Hence, the Award provided for payments on three separate bases: genuine retrenchment, termination for reasons other than misconduct, and consensual resignation. In this way, the Award constituted a composite scheme that extended beyond the narrow statutory concept of retrenchment, encompassing additional categories of termination that the Act specifically excluded from its definition of retrenchment.

Because the payment is designated as gratuity even when it is made in consequence of retrenchment, it cannot be regarded as anything other than compensation for the portion of the Award that deals with retrenchment. Chapter VA, which contains sections 25F and 25J, was introduced into the Act by Act 43 of 1953 and came into force on 24 October 1953. The legislature introduced this chapter because, although many establishments already operated schemes that provided payments to workmen on retrenchment, there were also numerous establishments that had no such schemes, leaving workmen without any payment on retrenchment unless a Tribunal issued an award. Moreover, where schemes or awards existed, the rates of payment varied considerably. Consequently, Parliament deemed it appropriate to enact Chapter VA so that section 25F would establish a uniform minimum payment to workmen who were retrenched. The payment prescribed in section 25F is termed compensation. Section 25F stipulates that no workman employed in any industry who has completed at least one year of continuous service with an employer may be retrenched without receiving compensation equal to fifteen days’ average wages for each completed year of service, or for any part thereof exceeding six months. Section 25J, subsection (1), provides that the provisions of Chapter VA shall prevail even if they are inconsistent with any other law, including standing orders. However, a proviso to subsection (1) states that nothing in the Act shall diminish any right that a workman possesses under any award that is presently operative or under any contract with the employer. This provision clearly indicates that if an award or contract grants a workman a retrenchment benefit that exceeds the amount prescribed by section 25F, the workman is entitled to that greater benefit, and the provisions of section 25F will not reduce the amount owed under the award or contract to the statutory minimum. It is evident that Parliament did not intend for a workman to receive compensation twice for the same retrenchment—once under the Act and again under a scheme or award, regardless of the label applied to the payment. The Court cannot concur with the Appellate Tribunal’s view that gratuity paid on retrenchment bears no relationship to the compensation payable under section 25F of the Act. The Tribunal appears to have been misled by the term “gratuity” used in the Award and has treated gratuity on retrenchment as distinct from compensation on retrenchment. The Court holds that this interpretation is incorrect. Whether the payment is described as “gratuity” or as “compensation,” it is, in substance, a payment to the workman on account of

In this case, the Court observed that when a scheme such as the one before it expressly provides a payment for retrenchment as defined in section 2(00), there is no reason to require that the same payment be made twice – once under section 25F of the Act and again under the scheme that is already operating in the concerned establishment. The Court added that the situation would be different only if the scheme that is operating in a particular establishment or any award provided a gratuity that is of a different character from the retrenchment compensation contemplated in section 25F. The Court also rejected the view expressed by the Appellate Tribunal that the gratuity mentioned in the award in the present matter does not constitute a retrenchment benefit. Having examined the award earlier, the Court explained that the award covers three separate contingencies, one of which relates to a payment that becomes due on retrenchment. Accordingly, the Court held that the gratuity specified in the award for the event of retrenchment is exactly the same in substance as the retrenchment compensation prescribed by section 25F of the Act. Consequently, the workmen may claim only one of the two amounts, and they are entitled to the one that is more advantageous under the provision of section 25J. The Court further expressed the opinion that the Industrial Tribunal was correct in finding that the scheme of the award, which provides a gratuity on retrenchment, is identical to the compensation prescribed by section 25F. Because the provisions of section 25F are more favorable to the workmen than those contained in the award with respect to retrenchment, the workmen can receive compensation only under section 25F and not both under that section and under the award. The Court noted that the appellant had already paid the compensation required by section 25F, and therefore the workmen were not entitled to any additional amount under the award. For these reasons, the Court allowed the appeal, set aside the order of the Appellate Tribunal, and restored the decision of the Industrial Tribunal. As this issue had arisen before the Court for the first time, the Court ordered each party to bear its own costs. The appeal was allowed.