The Brahmachari Research Institute,... vs Their Workmen on 16 October, 1959

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

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: 16 October, 1959

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

The appeal before the Supreme Court concerned a decision of the Labour Appellate Tribunal of India in an industrial dispute. The appellant was a partnership engaged in manufacturing pharmaceutical products and had long operated a gratuity scheme for its employees. That scheme was altered by an award of the industrial tribunal dated 18 August 1952, and the modified scheme had been in force since that time. When the financial condition of the partnership worsened, it found it necessary to retrench a number of workmen. Accordingly, the appellant sought permission under section 22 of the Industrial Disputes (Appellate Tribunal) Act, No XLVIII of 1950, to retrench eighty‑nine workmen. The Appellate Tribunal granted permission to retrench only seventy‑five workmen. After obtaining that permission, the appellant effected the retrenchments and paid the workmen compensation prescribed in section 25F of the Industrial Disputes Act, 1947. The retrenched workmen, through the trade union representing employees of the appellant, then raised a dispute seeking gratuity on retrenchment pursuant to the award. The dispute was referred on 23 March 1956 to the Second Industrial Tribunal, West Bengal, with the question: “Whether the seventy‑five retrenched employees (as per attached list) are entitled to gratuity in addition to retrenchment benefits?” The Tribunal held that the workmen were only entitled to the relief provided under section 25F of the Act and that no additional gratuity was payable under the award. The workmen appealed to the Appellate Tribunal, which allowed the appeal and held that the gratuity stipulated in the award was not a retrenchment benefit and therefore the workmen were entitled to it. The appellant then obtained special leave to appeal, and that leave was granted, bringing the matter before this Court.

The issue raised required the Court to consider the principles articulated in Indian Hume Pipe Company Limited v. Its Workmen, reported in 1960 (2) S.C.R. 32, a decision delivered on the same day as the present judgment. That precedent indicates that special considerations may arise from the specific terms of agreements or awards, and such considerations must be examined in each case. Accordingly, the sole question for determination in this appeal was whether the retrenched workmen were entitled, under the award, to the gratuity provided therein in addition to the retrenchment benefit prescribed by section 25F of the Industrial Disputes Act. The Court therefore reproduced the relevant portion of the award, which prescribed a gratuity scheme applicable to cases of retrenchment or termination for reasons other than misconduct, specifying a maximum gratuity of fifteen months’ basic pay, calculated on the average of the last twelve months’ basic pay, and conditioned on completion of at least one year of service, with no gratuity payable to persons discharged for misconduct. The Court set out to decide if that scheme conferred a benefit separate from the statutory retrenchment compensation.

In the award, the parties set out a gratuity scheme that would apply when a workman was retrenched or when his service was terminated by the company for any reason other than misconduct, as well as when a workman resigned with the consent of the management. The scheme provided that a gratuity could be paid up to a maximum of fifteen months’ basic pay, calculated at the rates that were specified in the award. To qualify for the gratuity, a workman had to have completed at least one year of service, and the basic pay used for the calculation would be the average of the last twelve months’ basic pay drawn by that workman. The award further stated that no gratuity would be payable before the completion of one year of service and that a workman who was discharged for misconduct would not be entitled to any gratuity. Finally, the award provided that, in the event of the death of an employee, his widow, children, or other dependents would be granted gratuity on the same basis.

The court observed that the award created a composite scheme that labelled the payment as “gratuity” under three separate conditions: (i) retrenchment, (ii) termination of service for any reason other than misconduct, and (iii) resignation with management’s consent. Although the same term was used for all three situations, the court noted that the label was not decisive; the substance of the payment had to be examined. The court concluded that, when the award was applied to a retrenched workman, the so‑called gratuity was, in substance, nothing more than compensation for retrenchment. The award allowed a retrenched workman to claim gratuity only on the ground of retrenchment and barred any claim under the other two conditions. Accordingly, a fair and reasonable construction of the award showed that the retrenched workman received only retrenchment compensation and not a separate gratuity. The court then referred to the definition of “retrenchment” in section 2(oo) of the Industrial Disputes Act, which describes retrenchment as the termination of a workman’s service by the employer for any reason except disciplinary punishment, while expressly excluding voluntary retirement, superannuation with a contractual stipulation, and termination on the ground of continued ill health. Comparing this definition with the provisions of the award, the court noted the correspondence between the award’s categories and the statutory exclusions.

The Court observed that the Award did not limit payment solely to cases of retrenchment. It also covered situations of termination of service that the statutory definition of “retrenchment” expressly excluded. The Award mirrored clauses (a) and (b) of section 2(oo) by using the expression “cases of resignation with the consent of the management.” Likewise, the Award reflected clause (c) of section 2(oo) through the wording “termination of service by the company for a reason other than misconduct.” Consequently, the Award created a composite scheme that provided for payment on retrenchment, on termination for any reason other than misconduct, and on retirement. Although the Award described the payment in the retrenchment context as “gratuity,” the Court held that, for the portion of the Award that related to retrenchment, the term could not be interpreted as anything other than compensation.

Chapter VA, containing sections 25F and 25J, had been inserted into the Act by Act 43 of 1953 with effect from 24 October 1953. The legislative purpose was to supply a uniform minimum payment to workmen who were retrenched, because many establishments either lacked any retrenchment scheme or offered inconsistent rates under various awards. Section 25F therefore prescribed that no workman employed in any industry who had completed at least one year of continuous service could be retrenched without receiving compensation equal to fifteen days’ average pay for each completed year of service, or for any part of a year exceeding six months. Section 25J, sub‑section (1), declared that the provisions of Chapter VA would apply notwithstanding any inconsistency with other laws, including standing orders. However, the proviso to sub‑section (1) stated that nothing in the Act would diminish any right a workman possessed under an existing award or contract. This meant that if an award or contract granted a workman a retrenchment benefit greater than the amount fixed by section 25F, the workman was entitled to the higher benefit, and the statutory provision could not reduce it. The Court concluded that the legislature had not intended a workman to receive compensation twice for the same retrenchment—once under the Act and again under an existing scheme.

The Court observed that the payment described in the award, although labelled as “gratuity,” constitutes retrenchment compensation for the workmen. It rejected the Appellate Tribunal’s view that gratuity on retrenchment is unrelated to the compensation required by section 25F of the Act. The Tribunal, the Court noted, had been misled by the terminology used in the award and had treated gratuity as a distinct benefit. The Court held that whether the payment is termed “gratuity” or “compensation,” its substance is a sum payable to the workman on account of retrenchment, and that a scheme expressly providing such a payment cannot be enforced in addition to the provision of section 25F. The Court added that a different result would arise only if the scheme or award offered a gratuity of a nature that differed from the retrenchment compensation contemplated by section 25F. Having examined the award, the Court found that it covered three contingencies, one of which was a payment due on retrenchment, and therefore concluded that the gratuity specified in the award is essentially the same as the compensation mandated by section 25F. Consequently, the workmen are entitled to the more advantageous of the two benefits, as provided by section 25J.

Accordingly, the Court affirmed the Industrial Tribunal’s finding that the award’s gratuity on retrenchment is identical to the compensation under section 25F, and that, because the provisions of section 25F are more beneficial, the workmen may receive only that compensation. The appellant had already paid the amount required by section 25F, and therefore the workmen could not claim any additional amount under the award. The Court allowed the appeal, set aside the decision of the Appellate Tribunal, and restored the order of the Industrial Tribunal. As this issue had arisen before the Court for the first time, it ordered each party to bear its own costs. The appeal was consequently allowed.