The Indian Hume Pipe Co. Ltd vs The Workmen And Another

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

Court: Supreme Court of India

Case Number: Civil Appeal No.169 of 1958

Decision Date: 16 October 1959

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

In the matter titled The Indian Hume Pipe Co. Ltd versus The Workmen and Another, decided on 16 October 1959, the Supreme Court of India rendered its judgment. The opinion was authored by Justice P. B. Gajendragadkar, who was joined on the bench by Justices Bhuvneshwar P. Sinha and K. N. Wanchoo. The case is reported in 1960 AIR 251 and is referenced in a number of subsequent reports, namely R 1960 SC 257 (2), F 1960 SC 413 (2), R 1960 SC 653 (3), R 1960 SC 833 (15), R 1960 SC 923 (14), R 1960 SC 1028 (4,5), RF 1963 SC 1489 (20), C 1963 SC 1721 (4), R 1965 SC 839 (3), F 1966 SC 987 (6), R 1967 SC 515 (3), RF 1967 SC 948 (31), E 1970 SC 919 (8,36), RF 1979 SC 25 (12), RF 1980 SC 1219 (6), RF 1983 SC 1320 (9). The judgment deals with issues arising under the Industrial Disputes Act, 1947, particularly the provisions relating to retrenchment compensation and gratuity, namely sections 2(rr) and 25F(b), and examines the validity of Ordinance V of 1953, section 25E(b). Section 25F(b) of the Act provides that no workman who has been in continuous service for at least one year may be retrenched until, at the time of retrenchment, the workman has received compensation equal to fifteen days’ average pay for each completed year of service or any part thereof exceeding six months. The dispute before the Court concerned a claim for gratuity made by the workmen. The company, as appellant, contended that the gratuity scheme framed by the Tribunal should not apply to any workman who was already entitled to retrenchment compensation under section 25F of the Act. Historically, prior to the introduction of section 25F by Act 43 of 1953, industrial awards often provided both retrenchment compensation and gratuity, although judicial decisions on the matter were not uniform. Ordinance V, promulgated on 24 October 1953, inserted section 25E(b), which required that before a workman could be retrenched, he must be paid gratuity calculated at fifteen days’ average pay for each completed year of service or any part thereof in excess of six months. This ordinance was subsequently incorporated into Act 43 of 1953, deemed to have effect from 24 October 1953, and the Act’s statement of aims and objects expressly declared that a workman shall not be retrenched without receiving one month’s written notice or wages in lieu thereof, together with a gratuity. Section 25F(b) of the Act therefore mirrors the language of section 25E(b) of the Ordinance, substituting the term “retrenchment compensation” for “gratuity.”

The Court observed that Section 25F of the Industrial Disputes Act, 1947 reproduced the language contained in Section 25E(b) of the 1953 Ordinance, but it replaced the word “gratuity” with the expression “retrenchment compensation.” The appellant argued that once Section 25F had been enacted, the law no longer permitted the creation of separate gratuity schemes to operate in addition to the statutory retrenchment compensation for employees who were retrenched. The appellant based this argument on three grounds. First, the appellant claimed that both Section 25E(b) of the Ordinance and the statement of aims and objects of the amending Act used the term “gratuity” and not “retrenchment compensation,” and therefore the original intention was to provide only gratuity. Second, the appellant contended that the amount of retrenchment compensation was calculated by taking into account the length of the workman’s past service, a method that was identical to the basis on which gratuity schemes determined the payment of gratuity, and that both schemes therefore used the same measure. Third, the appellant asserted that a retrenched workman would, under the two systems, receive both retrenchment compensation and gratuity, which would give him a larger benefit than other workmen of comparable service who retired and received only gratuity. The Court held that, for the purpose of interpreting Section 25F, the words employed in the statement of aims and objects of the Act were not controlling, and that the nature of the payment prescribed by the section could be understood only by reference to the term “retrenchment compensation” that the section itself used. Moreover, the Court held that in the absence of any provision in the Industrial Disputes Act expressly excluding the claim for or the grant of gratuity, the mere existence of Section 25F did not remove the jurisdiction of industrial tribunals to entertain claims under gratuity schemes, nor did it make it improper or unjust to devise such schemes for all employees, including those who were retrenched. The Court explained that the purpose of granting retrenchment compensation was to give a workman, who received only limited protection, financial assistance to tide over the period of unemployment, while preserving his gratuity so that it could be drawn upon after retirement. Accordingly, the two remedies complemented each other, and the fact that they might appear to give a double benefit did not affect the validity of either.

The judgment was delivered in a civil appellate jurisdiction concerning Civil Appeal No. 169 of 1958, which was taken by special leave from a decision dated 29 June 1955 rendered by the Labour Appellate Tribunal of India, Bombay, in Appeal (Bombay) No. 245 of 1955. That decision had arisen from an award dated 14 July 1955 of the Industrial Tribunal, Bombay, in Reference (I.T.) No. 100 of 1954. The parties were represented by counsel: the appellant was represented by counsel for the Solicitor-General of India and two additional advocates, while the respondents were represented by two counsel. The judgment was pronounced on 16 October 1959 by Justice Gajendragadkar. The Court framed the central question of the appeal as whether workmen were entitled to the double benefit of a gratuity scheme together with retrenchment compensation. The Court noted that this principal issue also arose, along with several subsidiary points, in other appeals that had been consolidated for consideration. The Court therefore indicated that it would address the main question in the present appeal first and would discuss the other points arising in the additional appeals separately.

In this appeal, the Court examined an industrial dispute that arose between the Indian Hume Pipe Co. Ltd., Bombay (referred to as the appellant) and its monthly-rated workmen, including canteen boys (referred to as the respondents). The dispute centred on the respondents’ claim for gratuity and was originally referred to an industrial tribunal with the instruction that gratuity should be paid according to the scale and conditions set out in the award of Industrial Tribunal Reference No 82 of 1950 dated 13 August 1951, and that gratuity should also be payable to employees whose services were terminated by the management after that award had taken effect. The respondents had earlier raised an industrial dispute in 1950 covering their demands for a scale of wages, dearness allowance, provident fund and gratuity. The matter was assigned to Mr Thakore, who issued his award on 13 August 1951, which included a gratuity scheme. Both the appellant and the respondents filed appeals against that award, but the appellate tribunal dismissed both appeals and affirmed the award. On 2 June 1953 the respondents served a notice terminating the award and demanding a higher rate of gratuity. Conciliation proceedings were attempted but failed, leading the respondents to make a fresh reference on 1 July 1954. Before the tribunal, the employees argued that the State Government lacked authority to limit their demand to the gratuity scheme devised by Mr Thakore and asked the tribunal to review and revise that scheme. The tribunal held that its jurisdiction was confined by the terms of reference and it could not consider a revision; it further observed that even if the respondents could seek a revision, the likelihood of success was low.

The appellant contested the gratuity scheme set out in the earlier award, contending that workmen who were eligible for retrenchment compensation under section 25F of the Industrial Disputes Act should not receive gratuity in addition to that statutory compensation. The tribunal rejected this argument and declared that the respondents were entitled to both gratuity and retrenchment compensation. Afterward, the tribunal examined the financial condition of the appellant and ordered that the gratuity scheme be enforced with certain modifications that it specified. The appellant challenged this award before the Labour Appellate Tribunal, maintaining that the respondents should not receive a double benefit of gratuity and statutory retrenchment compensation. The Labour Appellate Tribunal upheld the tribunal’s view, dismissing the appellant’s objection and confirming that the respondents could claim both benefits. The appellate tribunal also considered the appellant’s financial position and found no reason to overturn the discretion exercised by the tribunal in granting the same gratuity to workmen whether they were retrenched or not. The appellate tribunal subsequently refined the scheme, adding a paragraph that dealt with employees retrenched after the reference date but before the award became operative, directing that no additional gratuity be payable to those who had already received unemployment or retrenchment compensation exceeding the awarded gratuity; otherwise, the difference alone would be paid. The present appeal was filed against that final award, and the central question before the Court was whether an industrial tribunal could validly frame a gratuity scheme that granted workmen a benefit in addition to the statutory retrenchment compensation provided under the Act.

The appellate tribunal examined the record of the appellant and concluded that there was no justification for overturning the discretion exercised by the lower tribunal when it ordered that “the same gratuity to the workmen in the case of retrenchment as in other cases” should be granted. After affirming that discretionary choice, the appellate tribunal turned its attention to the substance of the gratuity scheme that had been approved by the lower tribunal. It decided to make certain alterations to that scheme and to insert an additional paragraph that had originally been part of the earlier award but had been inadvertently omitted by the tribunal. The newly inserted paragraph specifically addressed the situation of employees who were retrenched after the date on which the reference was made but before the award actually came into force. For those employees, the paragraph stipulated that no further gratuity would be payable if they had already received unemployment or retrenchment compensation that exceeded the amount of gratuity previously awarded. In circumstances where the compensation received was less than the awarded gratuity, the tribunal directed that only the difference between the two amounts should be paid. The present appeal was filed against the award that incorporated these modifications. The principal question presented for determination, arising from the submissions made before the lower tribunals, is whether an industrial tribunal may devise a gratuity scheme for workmen who are also eligible to claim benefits under section 25F of the Industrial Disputes Act. This issue has been repeatedly raised before industrial tribunals, and the prevailing judicial approach has generally been to resolve it in favour of the employees.

In order to resolve this issue, it is necessary to understand the genuine nature of gratuity and to distinguish it from retrenchment compensation. Gratuity is a form of retirement benefit that is comparable to a provident fund or a pension. Historically, gratuity was regarded as a voluntary payment made by an employer at his discretion, but a long series of decisions by industrial tribunals have transformed that view, and gratuity is now recognised as a legitimate claim that workmen may assert, a claim that can, when appropriate, give rise to an industrial dispute. The purpose of gratuity is to provide financial assistance to employees after they cease working, whether the cessation results from the normal rules governing superannuation or from physical disability. The underlying principle of gratuity schemes is that employees, by virtue of their length of service, acquire a right to receive a certain amount as a retirement benefit. In contrast, retrenchment compensation is not a retirement benefit. By its very description, retrenchment compensation is a payment made to a workman when he is retrenched, and its aim is to mitigate the hardship that inevitably follows such termination. A retrenched workman is abruptly thrown into unemployment through no fault of his own, and he must confront the severe problem of finding new work. When a workman first joins an employer, he naturally expects a degree of job security that will extend over a long period; retrenchment shatters that expectation. Consequently, the objective of retrenchment compensation is to afford limited protection to the retrenched employee and his family, enabling them to endure the difficult period of unemployment. Thus, the conceptual foundation upon which retrenchment compensation is based is fundamentally different from the foundation that supports gratuity.

In this case the Court explained that the principle underlying gratuity is distinct from the principle underlying retrenchment compensation. Although a workman who is retrenched may also be entitled to claim gratuity, industrial adjudication has consistently held that the payment of retrenchment compensation does not diminish or defeat the workman’s separate right to gratuity. The Court observed that the purpose of granting retrenchment compensation is to preserve the workman’s gratuity so that it remains intact and available to him after he retires. Consequently, the objective of retrenchment compensation is to provide temporary relief during the period of unemployment, whereas the purpose of gratuity is to secure a retirement benefit. Because the two schemes serve different functions, the Court stated that they are not contradictory or mutually exclusive; rather, they complement each other and, on the basis of social justice, both claims may be regarded as legitimate. The appearance of a double benefit, the Court noted, does not invalidate either scheme, a view that has been endorsed by industrial tribunals in many reported decisions.

The Court then turned to the development of industrial law on gratuity. It explained that whenever an industrial tribunal considers an employee’s claim for gratuity, it first examines the employer’s financial condition. Only if the tribunal is satisfied that the employer can bear the financial burden does it approve a gratuity scheme that secures a retirement benefit for the employees. Although awards framing such schemes had been made for several years before 1951, the Labour Appellate Tribunal gave a detailed analysis of the issue in the case of The Army and Navy Stores Ltd., Bombay, and Their Workmen. In that case the Tribunal framed a model gratuity scheme that provided a month’s salary or wages for each year of continuous service in three situations: (i) death of an employee while in service or when the employee becomes physically or mentally incapable of further work, the amount being payable to the disabled employee or, if deceased, to his heirs or legal representatives; (ii) voluntary retirement or resignation after fifteen years of continuous service, for which half a month’s salary or wages for each year of service was payable; and (iii) termination of service by the company, for which a full month’s salary or wages for each completed year of service was payable. The Tribunal expressly excluded any employee dismissed for misconduct from receiving gratuity under this scheme. This model scheme has been repeatedly cited in subsequent disputes concerning gratuity, and the Court noted that gratuity benefits have generally been extended even to workmen whose services were terminated, thereby linking the gratuity entitlement to the broader context of employment termination.

In this case, the Court observed that workmen who became entitled to gratuity under the scheme were also held to be entitled to retrenchment compensation. The Court referred to the decision in Bangalore Woollen, Cotton and Silk Mills Co. Ltd. and Binny Mills Labour Association, where the Labour Appellate Tribunal authorised the employer to retrench 179 workmen on the condition that each retrenched workman would receive, as retrenchment relief, an amount equal to one month’s basic wage for every year of continuous service completed with the company. The Tribunal further stipulated that the basic wage used for this calculation must be the last basic wage drawn by the workman before the Tribunal granted its permission. The Tribunal expressly clarified that granting such retrenchment relief must not, in any manner, prejudice the determination of any gratuity scheme that was then before the adjudicator, and that the adjudicator was required to apply an independent mind unaffected by the Tribunal’s decision. The Court noted, however, that although it is rare, tribunals have occasionally refused to award gratuity to workmen whose services were terminated on the ground that they would receive compensation under the Industrial Disputes Act. Such dissenting decisions have been recorded in only a few cases, for example in Chemical, Industrial and Pharmaceutical Laboratory Ltd. and Their Workmen.

The Court further explained that, generally speaking, and subject to the employer’s capacity to pay, workmen have historically received both retrenchment compensation and gratuity under industrial awards that pre-date the introduction of section 25F of the Act. The Court cited the extensive consideration given by the Labour Appellate Tribunal in appeals against the award of the All India Industrial Tribunal (Bank Disputes), where it was held that the award of retrenchment compensation does not adversely affect a workman’s claim for gratuity. The Court emphasized that the two entitlements arise for entirely different reasons and that, in a proper case, both claims may be awarded simultaneously. Although the quantum of compensation varied from case to case and awards were not uniform, the Court observed that the amount of retrenchment compensation was usually linked to the length of past service rendered by the retrenched workman.

In Rashtriya Mill Mazdoor Sangh and Gold Mohur Mills, the Labour Appellate Tribunal adopted the view that the compensation payable to retrenched workmen should be calculated at the rate of ten days’ basic wages plus dearness allowance for each year of service, and it held that no maximum limit should be placed on this quantum. In Bombay Gas Co. Ltd. and Their Workmen, a detailed scheme was framed for computing retrenchment compensation. According to that scheme, workmen who had completed at least one year but less than three years of service were to receive wages for twenty-six days together with dearness allowance, whereas workmen who had completed three years of service or more were to receive…

According to the scheme that applied to workers who had completed three years of service or more, the compensation for retrenchment was fixed at twenty-six days’ wages together with dearness allowance for each year of service, but the total amount could not exceed one hundred and four days’ wages with dearness allowance. In the case of The National Industrial Works and Their Workmen (1) an even more detailed formula was created for calculating the quantum of compensation. From these industrial decisions it was evident that workmen were recognised as being entitled both to a gratuity and to a compensation payment when they were retrenched, and that the size of the retrenchment compensation was to be measured by reference to the length of service of the retrenched employee. However, it must be noted that the industrial decisions on the two related topics of gratuity and retrenchment compensation were not always consistent; at times they exhibited a degree of uncertainty and even ambiguity in how the matters were approached. While this lack of uniformity persisted in the industrial arena, Ordinance V was issued on 24 October 1953. Section 25E of that Ordinance set out certain conditions that had to be satisfied before a workman could be retrenched. One of the conditions prescribed in clause 25E(b) required that, at the time of retrenchment, the workman be paid a gratuity equal to fifteen days’ average pay for each completed year of service or for any part thereof in excess of six months. The Ordinance was subsequently incorporated into Act 43 of 1953, which is deemed to have come into force on the same date, 24 October 1953. By way of amendment this Act introduced Section 25F. The language of Section 25F(b) mirrors that of Section 25E(b) of the Ordinance, except that the term “gratuity” has been replaced by the expression “retrenchment compensation”. It is also worth mentioning that the statement of aims and objects of the Act observed that, with respect to retrenchment, the legislation provided that a workman who had been continuously employed for at least one year could not be retrenched unless he received either one month’s written notice or one month’s wages in lieu of such notice, and also a gratuity calculated at fifteen days’ average pay for each completed year of service or any part thereof in excess of six months. The appellant contended that, after the enactment of Section 25F, there was no longer any scope for creating separate gratuity schemes in addition to the statutory retrenchment compensation payable to retrenched employees. To support this contention, the appellant relied on the fact that both Section 25E(b) of the Ordinance and the statement of aims and objects of the amending Act used the word “gratuity” rather than “retrenchment compensation”. It is clear, however, that for the purpose of interpreting Section 25F, the wording employed in the statement of aims and objects is not relevant. Moreover, concerning the use of the word “gratuity” in Section 25E(b) of the Ordinance, it is significant that the term was deliberately omitted in the amended provision and the words “retrenchment compensation” were inserted in its place.

The Court noted that section 25F substituted the term “retrenchment compensation” for the word “gratuity,” and therefore the nature of the payment prescribed by section 25F could not be inferred from the use of the word “gratuity” either in the Ordinance or in the statement of aims and objects of the Act. It held that if the character of the payment were to be decided solely by the terminology employed, the language of section 25F clearly designates the payment as retrenchment compensation and not as gratuity. Beyond the mere choice of words, the Court emphasized that section 25F was intended to provide compensation to workmen who had been retrenched, specifically to address the hardships they would face upon losing their employment. The Court observed that when the Ordinance was promulgated, the problem of retrenchment had become widespread and acute, prompting the Legislature to intervene and create a statutory provision for adequate retrenchment compensation. It further observed that the Legislature was aware that industrial tribunals were awarding retrenchment compensation, but it believed that the tribunals considered a variety of factors, resulting in a lack of uniformity and certainty in the amounts awarded. Consequently, the Legislature decided to standardise the payment of retrenchment compensation by prescribing a uniform statutory rule, and the enactment of section 25F merely standardises that payment and nothing more. The Court stated that if, before the enactment of section 25F, employees could claim retrenchment compensation in addition to gratuity, there was no reason why the same dual claim could not be made after the enactment. It addressed the argument that the length of past service was taken into account in determining the amount of retrenchment compensation, noting that gratuity schemes also use similar considerations and measures. The Court pointed out that even before section 25F was enacted, tribunals employed comparable methods for calculating retrenchment compensation, and therefore the use of past service as a basis for computation does not transform retrenchment compensation into gratuity. It clarified that the claims for retrenchment compensation and for gratuity arise from different considerations, and that the grant of one does not preclude the grant of the other. While acknowledging that a retrenched workman may receive both retrenchment compensation and gratuity, and that this may result in a higher total payment than that received by a retiring workman of comparable service, the Court stressed that retrenchment compensation is paid because the workman has been involuntarily forced into unemployment and is intended to help him survive the period of unemployment. Thus, on the general contention raised, the Court found no conflict between the two separate benefits.

The Court observed that the contention that employees could not claim both gratuity and retrenchment compensation cannot be sustained. It held that there is no conflict between the two claims and that industrial tribunals are correct in recognising that both claims may be entertained and granted. The Court further stated that reasonable gratuity schemes may be framed even after the enactment of section 25F of the Industrial Disputes Act. In support of this view, the Court referred to the definition of “wages” in section 2(rr) of the Act, which expressly excludes any gratuity payable on termination of service. This exclusion indicates that the Legislature was aware that gratuity could be claimed by employees and is frequently awarded. The Court noted that, had the legislature intended that the statutory retrenchment compensation provided by section 25F should affect an employee’s claim for gratuity, it would have inserted an explicit provision to that effect. The Court cited section 17 of the Employees’ Provident Funds Act, 1952, which empowers the appropriate Government to exempt establishments that already provide provident-fund benefits not less favourable than those under the Act. In the absence of a comparable provision in the Industrial Disputes Act, the Court considered it unreasonable to conclude that the mere enactment of section 25F either removes the jurisdiction of industrial tribunals to entertain gratuity claims or renders it improper or unjust to devise gratuity schemes for all employees, including those who are retrenched.

The Court then turned to the specific submissions of the learned Solicitor-General. While the Solicitor-General conceded that he could not persuade the Court that, as a matter of law, his client’s position should prevail, he vigorously argued that industrial tribunals, when framing gratuity schemes, should make appropriate provisions to grant gratuity to retrenched workmen on a basis different from that applied to other workmen. He contended that because retrenched workers receive statutory compensation on a very liberal scale, they should not receive gratuity at the same rates fixed for other employees; instead, they should obtain gratuity at a reduced rate and on less generous terms. The Solicitor-General further suggested that the gratuity scheme framed by the appellate tribunal be suitably amended to reflect this distinction. The Court declined to accede to this request. It held that whether a two-fold gratuity scheme—one for retrenched workmen and another for the rest—should be devised is a matter that may, if necessary, be raised before the tribunal in an appropriate case. The Court also observed that the question, as presented, is not of general importance, given the present economic climate and the limited scale of retrenchments, and therefore it would not be entertained in the appeal under Article 136.

In this particular form the question does not have general importance because, given the current condition of the Indian economy which has already received and continues to receive stimulus through national development plans, it is unlikely that our industrial sector will encounter a large-scale problem of retrenchment in the near future. Nevertheless, notwithstanding that observation, the Court is unable to consider or determine the issue that was raised by the learned Solicitor-General in the petition filed under Article 136. Before disposing of the petition, the Court wishes to note another facet of the matter which the present judgment does not address. It is conceivable that a gratuity scheme, whether created by mutual consent of the parties or imposed by an award, may contain a provision for payment of compensation to workers who have been retrenched, either as a substitute for gratuity or in addition to it. In such circumstances, whether the retrenched workers are entitled to draw benefits under that scheme in addition to the retrenchment compensation prescribed in section 25F of the Industrial Disputes Act would depend upon the interpretation of the substantive terms of the scheme, read in light of the provisions of section 25F. The Court, however, was not called upon to examine that particular question in the present appeal. Consequently, the present decision cannot refer to any authority or precedent that would be applicable to cases decided under section 25F of the Act. As a result, the petition is dismissed and the costs of the appeal are awarded against the petitioner.