The Garment Cleaning Works vs Its Workmen

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

Court: supreme-court

Case Number: Civil Appeal No 621 of 1960

Decision Date: 03 March 1961

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

In the matter titled The Garment Cleaning Works versus Its Workmen, decided on 3 March 1961, the Supreme Court of India heard a civil appeal filed under special leave. The opinion was authored by Justice P B Gajendragadkar, who was joined on the bench by Justice K N Wanchoo. The parties were identified as the petitioner, The Garment Cleaning Works, and the respondents, its workmen. The judgment was recorded on the date of 03 /03 /1961. The case appears in the official reports as 1962 AIR 673 and 1962 SCR Supl. (1) 711. Subsequent citations of the decision include R 1964 SC 864 (25), R 1966 SC 305 (41), R 1966 SC 732 (2), NF 1967 SC 1286 (12), RF 1969 SC 182 (12), R 1970 SC 919 (14, 18, 34, 35, 36) and E 1970 SC 1421 (13, 14, 15). The dispute concerned the validity of a gratuity scheme framed by an Industrial Tribunal under Section 12(5) of the Industrial Disputes Act, 1947 (Act 14 of 1947). The tribunal, on a reference made in accordance with Section 12 of the Act, had drawn up a gratuity scheme for the appellant company. The company challenged several provisions of that scheme, arguing, among other points, that the scheme should have been prepared on an industry‑cum‑region basis rather than on the basis of individual units; that the scheme allowed a workman to claim gratuity after ten years of service, whereas the company insisted that the qualifying period should be fifteen years; and that clause (ii)(b) of the scheme, which denied gratuity proportionate to the loss caused when a workman was dismissed for misconduct, was faulty because misconduct, in principle, should entirely disqualify the employee from any gratuity claim. The Court held that an industry‑cum‑region basis is not the sole permissible basis for framing a gratuity scheme and that a scheme prepared on the basis of units is not per se invalid, referring to the decision in Bharatkhand Textile Manufacturing Co. Ltd. v. The Textile Labour Association, Ahmedabad, [1960] 3 SCR 329. The Court further upheld the clause requiring a minimum of ten years’ service for a gratuity claim as valid, relying on the authority of Express Newspapers (P.) Ltd. v. Union of India, [1959] SCR 12. Lastly, the Court reasoned that gratuity is paid as consideration for services rendered and therefore should not be wholly withdrawn even if, at the end of service, the employee is found guilty of misconduct resulting in dismissal; consequently, clause (ii)(b) of the scheme was declared a valid provision. The judgment formed part of Civil Appeal No. 621 of 1960, an appeal by special leave from the award dated 15 January 1960 of the Industrial Tribunal, Bombay, in Reference (I.T.) No. 94 of 1959. The appellant was represented by B Sen and I N Shroff, while the respondents were represented by C L Dhudia and K L Hathi. The judgment was delivered on 3 April 1961.

In this case, the two demands that had been made by the respondents – who were the workmen employed by the appellant company, Garment Cleaning Works, Bombay – were referred to an industrial tribunal for adjudication under section 12(5) of the Industrial Disputes Act, 1947. The first demand concerned payment of gratuity and the second demand concerned the institution of a provident‑fund scheme. After hearing the matter, the tribunal formulated a gratuity scheme and also issued an order directing the appellant to prepare a provident‑fund scheme modelled on the Government’s model scheme under the Employees’ Provident Funds Act, 1952, specifying that the contribution rate should be six and one‑quarter per cent of total wages. The appellant challenged both the gratuity scheme that had been drawn up and the tribunal’s direction to draw up a provident‑fund scheme by filing the present appeal before this Court under a special leave jurisdiction. Concerning the tribunal’s direction relating to the gratuity scheme, the counsel for the respondents, Mr. Sen, argued that the tribunal should have examined the issue of instituting a gratuity scheme on the basis of the industry and the geographical region, and that the relevant considerations pertaining to that basis ought to have been taken into account. To support that position, he cited a previous decision of this Court in The Bharatkhand Textile Manufacturing Co. Ltd. & Ors. v. The Textile Labour Association, Ahmedabad. In that earlier case, the industrial court had considered a claim for gratuity that was presented on an industry‑cum‑region basis, and the employer’s challenge to that approach had been rejected by this Court. However, the present judgment points out that the earlier Court had only held that it was erroneous to say that a gratuity scheme could never be based on an industry‑cum‑region basis; the Court merely listed several considerations that justified permitting such a basis in appropriate cases. The earlier decision did not declare that an industry‑cum‑region basis was the exclusive method for framing a gratuity scheme. Indeed, in most cases, gratuity schemes have been drafted on the basis of individual units, and no authority has ever suggested that unit‑based schemes are impermissible. Consequently, the decision in Bharatkhand Textile Manufacturing does not support the proposition advanced by Mr. Sen. Mr. Sen further criticized specific provisions of the gratuity scheme. Clause (ii)(a) of the scheme provides that a workman who retires or resigns after completing ten years of service is entitled to receive gratuity equal to ten days’ consolidated wages for each completed year of service. The counsel objected to this provision, contending that gratuity should not become payable under the clause unless the employee has completed fifteen years of service. He sought to rely on additional authorities to support that position.

In this case, counsel for the respondent referred to observations of this Court in The Express Newspapers (Private) Ltd. & Anr. v. The Union of India & Ors. (2). The court there had struck down the provisions of section 5(1)(a)(iii) of the Working Journalists (Conditions of Service) and Miscellaneous Provisions Act, 1955 (45 of 1955) because they violated the fundamental right guaranteed by Article 19(1)(g). The judgment held that a clause granting gratuity to an employee who had completed only three years of service imposed an unreasonable restriction on the employer’s right to carry on business and was therefore unconstitutional. While discussing that provision, the Court incidentally observed that an employee who has remained in continuous service for more than fifteen years would be entitled to gratuity upon resigning his post.

Counsel for the respondent argued that this observation meant that an employee who resigns cannot claim any gratuity unless he has completed fifteen years of service, relying on the authorities (1) [1960] 3 S.C.R. 329 and (2) [1959] S.C.R. 12, 154. The Court, however, expressed the view that the observation was not intended to create a universal rule applicable to all gratuity schemes. Consequently, it could not be used as a basis to attack a scheme that specifies a minimum of ten years of service for a gratuity claim, provided the employee resigns after completing ten years. Accordingly, the Court concluded that clause (ii)(a) of the scheme could not be successfully challenged on the ground of unreasonableness.

Clause (iv) was also contested. That clause states that if a workman is dismissed or discharged for misconduct causing financial loss to the works, gratuity to the extent of the loss shall not be paid to the workman. Counsel for the respondent contended that this provision conflicted with the general principles underlying gratuity claims. He argued that gratuity is a retrial benefit based on long and meritorious service, and that termination for misconduct places a blot on the employee’s character, disqualifying him from any gratuity claim. To support this, he cited the definition of “retrenchment” in section 2(oo) of the Industrial Disputes Act, which describes retrenchment as termination by the employer for any reason other than as a disciplinary punishment. He suggested that both retrenchment benefit and gratuity are payments made for a similar purpose, and therefore, if dismissal for misconduct precludes retrenchment benefit, it should also preclude gratuity.

The argument presented is that a dismissal for misconduct, which does not give the employee a right to a retrenchment benefit, should likewise preclude any claim to gratuity. A comparable line of reasoning is drawn from the Employees’ Provident Funds Act, 1952, where Rule 71 of the Provident Funds Scheme Rules authorises certain deductions from the account of a member who is dismissed for serious and willful misconduct. By analogy, it is submitted that this rule demonstrates that a dismissed employee should not be entitled to gratuity. The Court was not persuaded by these submissions. In principle, when gratuity is earned by an employee on account of long and meritorious service, it is difficult to understand why a benefit that has been accrued through such service should be withheld merely because the employee, at the conclusion of that service, was found guilty of misconduct leading to dismissal. Gratuity is not a gratuitous or charitable payment; it is paid as compensation for the service rendered to the employer, and once the entitlement has been established, it is hard to justify denial of the benefit regardless of the nature of the misconduct that caused the termination. Regarding the definition of retrenchment in the Industrial Disputes Act, the Court is not satisfied that gratuity and retrenchment compensation occupy exactly the same position with respect to the impact of misconduct on a workman’s rights. The rule in the provident‑fund scheme does not deny the entire provident‑fund balance to an employee who is dismissed; it merely permits specific deductions, and even those deducted amounts do not revert to the employer. Consequently, the Court does not accept the blanket proposition that gratuity must be refused in every case where an employee’s service ends because of misconduct. It is observed that some awards framing gratuity schemes differentiate between simple misconduct and gross misconduct, denying forfeiture of gratuity only in the latter circumstance, while most industrial tribunals have generally followed the provision contained in clause (ii)(b) of the present scheme. Where the misconduct that led to termination has caused financial loss to the employer, the employee is first required to compensate the employer for the entire loss; only after such compensation, if any balance remains from the gratuity that is claimable, is that balance paid to the employee. Overall, the Court is not convinced that the clause framed by the Industrial Tribunal in the present case requires revision. The final contention raised relates to clause (v) of the gratuity scheme.

The clause of the scheme stipulates that, for the purpose of calculating years of service, the entire period of employment of each workman must be taken into account. Counsel for the petitioner argued that, although the term “continuous” does not appear in clause (v) or in clauses (i), (ii) and (iii), the intention should be read to require continuous service in all of those provisions. The respondent’s counsel did not contest this interpretation. Consequently, the Court clarified that the reference to service in clauses (i), (ii) and (iii) shall be understood as referring to continuous service. The discussion then moved to the petitioner’s objection to a direction issued by the Tribunal concerning the formulation of a provident‑fund scheme based on the model scheme prepared by the Government under the Employees’ Provident Funds Act. The petitioner’s counsel contended that, in issuing that direction, the Tribunal had failed to properly evaluate the financial burden that the scheme would place on the employer and had ignored the employer’s limited financial capacity. When the employer produced its balance‑sheet and other relevant documents, it claimed privilege under section 21 of the Industrial Disputes Act. As a result, the Tribunal was unable to refer to those figures in its award, although it must have examined them. Accordingly, the Tribunal confined its discussion to general observations about the employer’s financial position, noting that the key considerations in framing a provident‑fund scheme are whether the employer has earned sufficient profits, whether its future prospects are secure, and whether it can build adequate reserves. After posing these questions, the Tribunal concluded that the employer satisfied all of them. The petitioner’s counsel argued that the Tribunal overlooked the fact that the employer had no reserves and had taken large loans. The Court observed that such matters are purely factual questions and cannot be reopened on a procedural ground. The petitioner’s counsel, acknowledging the difficulty created by the earlier claim of privilege, suggested that the case be remanded with appropriate costs and that the Tribunal reconvene to consider the documents, assuring that privilege would not be claimed again. The Court found this request untenable, stating that if the employer had wanted the Tribunal to rely on the financial figures, it should not have claimed privilege at the trial, and it is now too late to waive that privilege and ask the Tribunal or this Court to revisit the matter.

In the present appeal, the Court examined the order that had been issued by the Tribunal concerning the manner in which the provident fund scheme should be framed. After reviewing the material placed before it, the Court concluded that there was no justification for it to alter or set aside the direction that the Tribunal had previously given on that matter. Consequently, the Court found that the appellant had not established any circumstance that required the Tribunal’s instruction to be varied. On that basis, the Court held that the appeal could not succeed. Accordingly, the Court ordered that the appeal be dismissed. In addition, the Court directed that the costs of the proceedings be awarded against the appellant. The final disposition was that the appeal was dismissed with costs. The judgment also reaffirmed the principle that a higher authority will not disturb a lower tribunal’s directive unless a clear error or jurisdictional lapse is demonstrated. In this case, the Court observed that the record did not reveal any such error, and therefore the direction remained intact. The dismissal with costs underscores the appellant’s failure to persuade the Court to revisit the Tribunal’s framing order. The costs order was imposed to reflect the frivolous or unmeritorious nature of the challenge.