The Dunlop Rubber Co. (India) Ltd vs Workmen And Others

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

Court: Supreme Court of India

Case Number: Civil Appeals Nos.159 and 160 of 1958

Decision Date: 16 October 1959

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

The Supreme Court of India delivered its judgment on 16 October 1959 in the matter of The Dunlop Rubber Co. (India) Ltd. versus Workmen and Others. The opinion was authored by Justice K. N. Wanchoo, and the bench comprised Justices K. N. Wanchoo, Bhuvneshwar P. Sinha, and P. B. Gajendragadkar. The petitioner was The Dunlop Rubber Co. (India) Ltd., and the respondents were the workmen and others. The citation of the decision appears as 1960 AIR 207 and 1960 SCR (2) 51. The case is also referenced in several subsequent reports, including R 1961 SC 1175 (paragraphs 6, 7, 8, 11), R 1964 SC 1886 (paragraph 5), RF 1972 SC 2326 (paragraph 18), E 1984 SC 356 (paragraphs 2, 4, 5, 11, 17), R 1986 SC 125 (paragraph 7), and it concerned the Industrial Dispute Act relating to a company carrying on business throughout India. The specific dispute involved a claim by regional employees for an increased retirement age and a revised gratuity scale, and examined whether an industrial tribunal possessed the power to modify uniform conditions of service in accordance with prevailing regional conditions.

The headnote explained that the appellant company operated nationwide but its principal business was located in Calcutta. Clerical and non-clerical staff in Bombay raised disputes concerning the gratuity scale, alleging that the existing scheme was inadequate, and also sought to raise the clerical retirement age from fifty-five to sixty years. The company opposed the claim, arguing that the scheme had been established through an agreement with the large majority of its staff in Calcutta and therefore could not be altered at the request of a small minority elsewhere. The industrial tribunal rejected the company’s contention, increased the retirement age to sixty years, and raised the gratuity scale, making it uniform for both clerical and non-clerical employees. The company reiterated its position before this Court. The Court held that, although it is advisable for an all-India concern to maintain uniform conditions of service across the country, industrial adjudication in India is based on industry-cum-region principles. Consequently, when regional conditions differ, it may be necessary for an industrial tribunal to alter a uniform scheme to ensure fair service conditions. In the present case, the tribunal found that the existing scheme was neither sufficient nor aligned with the prevailing regional conditions, and therefore it was not bound to maintain the original retirement age or gratuity arrangement solely because the appellant operated nationwide. The Court further concluded that the tribunal’s decision to raise the clerical retirement age to sixty years was not improper. The judgment referred to the precedent of Guest, Keen, Williams (Private) Limited, Calcutta v. P. J. Sterling and Others, [1960] 1 S.C.R. 348. The case was heard under the civil appellate jurisdiction, identified as Civil Appeals Nos. 159 and 160 of 1958, and was brought before the Court by special leave.

On September 4 1958, the Industrial Tribunal in Bombay issued an award in Reference (IT) Nos. 138 and 35 of 1958. Counsel N. A. Palkhivala, S. N. Andley, J. B. Dadachanji and Rameshwar Nath appeared for the appellant, while C. L. Dudhia and K. L. Hathi represented respondents 1 and 2. The judgment was delivered on October 16 1959 by Justice Wanchoo. The two appeals, which were granted special leave, stem from separate references made by the Government of Bombay concerning a dispute between the appellant company and two categories of its workmen: clerical staff and non-clerical staff. The clerical staff originally raised four questions before the tribunal; of those, only the matters of retirement age and gratuity remain for consideration in the present appeal. The non-clerical staff raised two questions, but only the grievance relating to gratuity is before this Court.

The appellant company is organized as an all-India concern, yet the bulk of its operations and its workforce are located in Calcutta. The number of non-clerical employees situated outside Calcutta is comparatively small, and the clerical workforce outside Calcutta is likewise much less than the clerical staff employed in Calcutta. The company had instituted a gratuity scheme that applied to both clerical and non-clerical employees. Under this scheme the amount of gratuity varied according to the basic salary of the employee: workmen other than operatives who earned more than Rs 100 per month received a higher scale than those earning Rs 100 or less, while operatives were placed on a uniform scale equal to that for workmen other than operatives whose salary was Rs 100 or less. The workmen in Bombay, both clerical and non-clerical, contested the existing scales, arguing that the amounts fixed by the scheme were too low and should be increased. Additionally, the clerical staff in Bombay contended that the statutory retirement age of 55 years should be raised to 60 years.

The appellant company submitted to the tribunal that, because the great majority of its clerical and non-clerical personnel were based in Calcutta, the gratuity scheme and the retirement age—both of which had been established through an agreement with the Calcutta unions representing the majority of its workmen—should not be altered on the basis of the demands of a relatively small minority of employees in Bombay. The tribunal rejected this argument. It decided to raise the retirement age for clerical staff from 55 to 60 years and to modify the gratuity scheme by increasing the scales and making the gratuity uniformly applicable to both clerical and non-clerical employees.

Following the tribunal’s order, the appellant sought and obtained special leave to appeal before this Court. Counsel for the appellant, appearing on behalf of the company, limited the arguments to two principal points: the propriety of raising the retirement age and the validity of the amendment to the gratuity scale. The Court will therefore confine its analysis to these two issues, as presented by the appellant’s counsel.

In this case the counsel for the appellant limited his submissions to the two matters that had been raised before the Tribunal. He acknowledged that the Industrial Tribunal possessed the authority to prescribe the alterations that it had imposed. Nevertheless, he argued that, despite the existence of such jurisdiction, the Tribunal ought to consider the distinctive status of a company that operated throughout India and should refrain from effecting modifications on the basis of a petition presented by a relatively small group of employees, since doing so might provoke industrial disturbance in other locations. He further asserted that the level of gratuity and the statutory retirement age were issues that did not depend upon local circumstances and therefore should be applied uniformly across the nation in enterprises that had an all-India character. He emphasized that the terms of employment adopted by the appellant company were identical in every part of the country and had been concluded through negotiations with the trade unions representing the workers in Calcutta, where the overwhelming majority of the workforce was based. In view of these particular facts, he maintained that the Tribunal seated in Bombay should not have altered either the retirement age or the gratuity arrangement merely because a minor fraction of the employees in Bombay had raised objections. He conceded that, for an enterprise operating on a national scale, it was certainly desirable to maintain consistent conditions of service throughout the country and that, once such uniformity was established, any changes to it should not be undertaken lightly. At the same time, he recognized that the system of industrial adjudication in this country was fundamentally organized on an industry-by-region basis, and that situations could arise where, in order to uphold this principle, it became necessary to introduce amendments even when the service conditions of an all-India concern were otherwise uniform. Moreover, he admitted that however much uniformity might be prized in a nationwide concern, the Tribunal could not simply ignore the requirement that fair and equitable conditions of service be maintained within the particular industry that fell within its jurisdiction. Accordingly, if a scheme that was intended to be uniform across the country appeared to be unjust or out of step with the prevailing local conditions, the Tribunal bore the duty to modify that scheme so as to render it fair and to align it with the existing conditions prevailing in the region where the Tribunal operated, irrespective of the fact that the demand for change originated from only a small minority of workers located in one of the many places where the company conducted its business. Before addressing the two specific questions that had been presented to the Court, the Court noted that the gratuity scale and the retirement age had originally been fixed by a collective agreement reached in 1956 between the appellant company and its workers in Calcutta, who constituted the large majority of the workforce. That agreement was limited to a period of two years, terminating on 31 December 1957. Subsequently, a second agreement, also covering a two-year term and commencing on 1 January 1958, replaced the first. The latter agreement expressly provided that no further major issues would be raised, except those relating to medical aid, retirement age, and retirement benefits.

In the agreement that succeeded the 1956 arrangement, the parties expressly limited future disputes to matters concerning medical aid, retirement age and retirement benefits. Consequently, even the workmen in Calcutta retained the right to contest the provisions relating to retirement age and gratuity if required. The reason for preserving this right was that the appeals arising from those issues were still pending before the tribunal in Bombay, and the unions in Calcutta preferred to wait for the Bombay tribunal’s determination before accepting any continuation of the existing rules on retirement age and gratuity. The appellant-company also consented to retain this reservation in the subsequent agreement with the Calcutta unions. Because of that reservation, it could not be said that a final, enforceable agreement covering retirement age and gratuity existed between the appellant-company and the great majority of its workmen in September 1958, when the Bombay Tribunal rendered its award. Moreover, the Bombay Tribunal was obliged to examine the merits of the questions of retirement age and gratuity, taking into account the all-India character of the concern and the earlier 1956 agreement, and it indeed performed that function.

The Tribunal first addressed the retirement-age question. It observed that, in various concerns operating in Bombay, retirement ages were fixed either at fifty-five or at sixty years. The Tribunal considered fifty-five years to be an unduly low age for clerical staff and noted that recent awards in the region had tended to set the retirement age at sixty years. Accordingly, the Tribunal ordered that, for clerical personnel, the retirement age should be fixed at sixty years instead of fifty-five. In support of that view, the Tribunal referred to a recent decision of this Court in Guest Keen, Williams (Private) Limited, Calcutta v. P. J. Sterling and Others (1), where the Court held that the superannuation age of employees who were employed before the standing orders came into force should be fixed at sixty years. In these circumstances, the Tribunal’s determination that sixty years was a fair retirement age for clerical staff, even though the 1956 agreement had fixed the age at fifty-five years, was consistent with the prevailing conditions in many concerns in that region. The Court therefore found no reason to interfere with the Tribunal’s order on retirement age. The Tribunal then turned to the question of gratuity. Under the 1956 agreement, the gratuity scheme provided three-quarters of one month’s average basic salary for each completed year of continuous service for staff other than operatives whose monthly earnings did not exceed rupees one hundred, and thereafter half a month’s average basic salary for each year. For operatives, the scheme prescribed three weeks’ average basic wages for each completed year of continuous service. The minimum period of service required for eligibility to gratuity was three years in special circumstances such as death, physical or mental incapacity, and fifteen years in all other cases. The agreement also contained a provision for deducting an amount in lieu of provident-fund contributions credited by the company in 1941 for service rendered before 1 July 1941.

For operatives, the scheme granted a gratuity equal to each completed year of continuous service. The scheme required a minimum of three years of service for eligibility to gratuity in special situations such as death, physical incapacity, or mental incapacity, while fifteen years of service were required in all other cases. A provision also existed for “deducting some amount in lieu of provident fund credited by the company in 1941 in respect of service prior to 1st July, 1941.” The tribunal held that this gratuity scheme was inadequate and contained features that were not common in other prosperous concerns. It observed that the gratuity scale for clerks was lower than the scale for operatives, a situation that ran counter to the general conditions prevailing in that region. The tribunal further noted that clerical and supervisory staff enjoyed a higher standard of living and faced greater expenses for the education of their children, who typically entered employment at a later age compared with operatives. Consequently, the tribunal opined that a uniform gratuity scale should be fixed for all employees, including those whose wages exceeded Rs 100 per month, as reflected in the citation (1) [1960] (1) S.C.R. 348. The tribunal also identified the requirement of a minimum three-year service period for death, physical, or mental incapacity as another unusual feature and recommended its amendment. In its view, the usual provision in comparable schemes was a gratuity equal to one month’s basic salary for each completed year of continuous service in cases of death, physical or mental incapacity, and after fifteen years of continuous service; generally, a reduced gratuity was provided when service terminated before fifteen years. Accordingly, the tribunal fashioned a revised schedule that granted half a month’s basic salary for each completed year of service after five years up to ten years, three-quarters of a month’s basic salary for each completed year after ten years but less than fifteen years, and a full month’s basic salary for each year thereafter. The tribunal also considered the existence of a supplementary gratuity scheme applicable to employees who were employed before 1 September 1946. Under this provision, such employees could either opt for the newly framed scheme or continue in the existing company gratuity scheme alongside the supplementary scheme. From the final gratuity scheme sanctioned by the tribunal, it appears that the tribunal removed the unusual and unfair features of the original scheme that were not consistent with the prevailing conditions for such schemes in the region. In these circumstances, the Court held that the tribunal was not bound merely because the appellant was an all-India concern to refrain from altering a gratuity scheme that, in the tribunal’s opinion, contained certain unusual features and was not aligned with regional practices.

The Court observed that the gratuity scheme as modified by the tribunal was consistent with the prevailing conditions in the region, and therefore it did not contain any elements that were unusual or unfair. Consequently, the appellant’s argument that the scheme should not have been altered on the basis that the company was an all-India concern was rejected. The Court found that the appellant’s contentions on this point were untenable and that the tribunal had acted within its authority. Accordingly, the Court dismissed the appeals and ordered that the appellant pay a single set of costs.