Management Of Wenger and Co vs Their Workmen

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

Court: Supreme Court of India

Case Number: Civil Appeals Nos. 609-610, 622-623 of 1962

Decision Date: 11 December 1962

Coram: P.B. Gajendragadkar, K.N. Wanchoo, K.C. Das Gupta, J.C. Shah

In the matter titled Management of Wenger & Co. versus Their Workmen (and vice versa), the Supreme Court of India delivered its judgment on 11 December 1962. The judgment was authored by Justice P. B. Gajendragadkar, and the bench comprised Justices P. B. Gajendragadkar, K. N. Wanchoo, K. C. Das Gupta and J. C. Shah. The petitioner was identified as Management of Wenger & Co., while the respondent was identified as Their Workmen, with the case being alternatively styled as the workmen versus the management. The official citation of the decision appears as 1964 AIR 864 and 1963 SCR Supplement (2) 862, and the judgment is referenced in several citator entries, including R 1965 SC 839, R 1966 SC 305 (47), RF 1966 SC 732 (10), F 1967 SC 1206 (5), E 1967 SC 1286 (14), E 1968 SC 1076 (9), RF 1969 SC 360 (38), E 1970 SC 919 (8, 36), R 1970 SC 1421 (16), RF 1972 SC 343 (20), F 1974 SC 1132 (13), RF 1976 SC 2303 (1), RF 1981 SC 1685 (2). The dispute concerned the application of the Industrial Disputes Act, 1947 (specifically section 8. 19A (4)), and raised questions about whether wine shops form part of a hotel establishment, the financial position of the employer, the wage structure, the calculation of bonuses, the remuneration of partners who actively manage the establishments, the treatment of tips, the propriety of introducing a gratuity scheme where an Employees’ Provident Fund scheme already existed, issues of misconduct involving moral turpitude, the retrospective operation of the award, and the extent to which the Court may interfere with the Tribunal’s powers, all within the framework of Article 136 of the Constitution of India. The headnote records that an industrial dispute arose from demands made by employees against thirteen hotel and restaurant institutions in Delhi. These disputes were referred to an Industrial Tribunal, which heard them together with a separate reference involving disputes in two other hotels. The Tribunal’s award in the two references gave rise to four appeals filed by special leave – two appeals by the employees and two by the employers. The employers contended that the Tribunal erred by grouping together the two hotels and eleven restaurants, arguing that the establishments were not similar in character. They further argued that the Tribunal mistakenly treated wine shops as part of the restaurant establishment. A third contention was that, in formulating the wage structure, the Tribunal failed to properly consider the employers’ financial position. The fourth allegation was that the Tribunal wrongly reduced the remuneration claimed for the various partners who actively participated in management of their respective establishments. The employers also submitted that because each worker received tips of Rs 50 to 60, no dearness allowance should have been awarded to the waiters. Another point raised was that, given the existence of an Employees’ Provident Fund scheme in the establishments, the introduction of a gratuity scheme by the award was unjustified. The employers further asserted that even if a gratuity scheme were justified in principle, the specific scheme contained in the award was substantively deficient. Additional contentions, to be addressed in subsequent portions of the judgment, relate to the Tribunal’s jurisdiction over future service‑charge decisions and its authority to give the award retrospective effect.

In this case the employers argued that if a gratuity scheme were justified in principle, the particular scheme incorporated in the award was substantively defective. The employers further submitted that the Tribunal’s directions concerning future decisions on service charges exceeded its jurisdiction because the matter had not been submitted for adjudication. They also asserted that the Tribunal possessed no power to make the award operate retrospectively on matters already settled. The workmen, for their part, contended that the bonus awarded was insufficient, relying on the observation that the Tribunal’s calculation of income‑tax, taken as a prior charge, conflicted with the Supreme Court’s recent decision in Tulsi Das Khimji v. Their Workmen, [1963] 1 S.C.R. 675. The Court then held that although the services rendered in hotels differed in certain respects from those performed in restaurants, both types of establishments belong to the catering trade. The Court observed that because the hotels and restaurants were located in similar localities and engaged in the same business, it was desirable that the terms and conditions of employment for their employees be as uniform as possible, since such uniformity promoted industrial peace, harmony, and efficient management. The question of functional integration between two units, the Court explained, must be determined on the facts of each case, and the mere absence of functional integration or the ability of the units to exist independently does not automatically indicate that they constitute separate establishments. The Court cited several authorities, including Associated Cement Co. Ltd. v. Their Workmen (1960) 1 L.L.J. 1; Pratap Press v. Their Workmen (1960) 1 L.L.J. 497; Pakshiraj Studios v. Its Workmen (1961) II L.L.J. 380; South Indian Millowners’ Association v.’ Coimbatore District Textile Workers Union (1962) 1 L.L.J. 223; Fine Knitting Co. Ltd. v. Industrial Court (1962) 1 L.L.J. 271; and D.C.M. Chemical Works v. Its Workmen (1962) 1 L.L.J. 388, to illustrate the principles governing the existence of a single establishment. The Court further stated that wine shops and restaurants constitute the same establishment because they share unity of ownership, unity of finance, unity of management, and unity of labour, and they are not separately registered entities. The Court observed that when a wage structure provides for increments, the employer’s financial position must be taken into account, and speculation about a possible future total prohibition cannot influence the determination of the wage problem in the present case. The Court added that employers may raise a dispute seeking a reduction in the wage structure if they can demonstrate that the introduction of total prohibition has so weakened their financial position that they cannot bear the burden imposed by the award. Finally, the Court noted that when this Court entertains appeals in industrial matters under Article 136 of the Constitution, it does not act as a court of fact‑finding but intervenes only on general questions of law.

In this case the Court explained that it does not function as a court of appeal on factual issues; it intervenes only when general questions of law are raised, at which point it feels bound to pronounce its decision. The Court observed that a firm does not qualify as a legal person within the meaning of the Industrial Disputes Act, and therefore the partners of the firm are to be treated as the actual employers. The decision referred to Tulsidas Khimji v. Their Workmen, [1963] 1 S.C.R. 675, for support. It was held that the tips received by waiters cannot be regarded as wholly irrelevant to the determination of the question concerning dearness allowance, yet it would also be incorrect to calculate the tip amount and treat that sum as a complete or partial substitute for dearness allowance. The Court advised that the fact of receiving tips should be kept in mind and an appropriate adjustment should be made in that regard. The judgments in State Bank of India v. Their Workmen, (1939) 2 L.L.J. 205 and Morthaclav v. Regent Street Florida Restaurant, (1951) 2 K.B. 277 were distinguished, while the case of Workmen of M/s. A. Fingo's Ltd. v. M/s. A. Fingo's Ltd., (1953) L.A.C. 480, was referred to. Regarding employee benefits, the Court stated that the purpose of the Provident Fund Scheme differs from that of the gratuity scheme, and where the employer’s financial position justifies the introduction of both schemes, there is no reason to deny the employer the advantages of either. The decisions in Bharat Khand Textile Mfg. Co. Ltd. v. Textile Labour Association, Ahmedabad, (1960) 2 L.L.J. 21 and Garment Cleaning Works v. Its Workmen, [1962] 1 S.C.R. 71 were followed. For termination of service caused by the employer, the Court fixed the minimum period of service required for gratuity payment at five years, while an employee who resigns becomes eligible for gratuity only after completing ten years of service. In cases where termination results from misconduct that causes financial loss to the employer, the loss must first be deducted from the gratuity payable to the employee. The Court held that a direction of the Tribunal concerning future service‑charge decisions, not covered by the terms of reference, is invalid. Under section 17A(4) of the Industrial Disputes Act, 1947, the Tribunal may specify the date from which its directions become operative. The judgment recorded that the matter fell within civil appellate jurisdiction, involving Civil Appeals Nos. 609 and 610 of 1962 and Civil Appeals Nos. 622 and 623 of 1962, filed by special leave against the award dated 16 March 1962 of the Industrial Tribunal, Delhi, in Industrial Dispute Nos. 581 and 620 of 1959. The parties were represented by counsel for the appellants and respondents, including the Attorney‑General for India.

The judgment was delivered on 11 December 1962 by Justice Gajendragadkar. The case concerned an industrial dispute that arose from ten separate demands made by employees against thirteen hotel and restaurant establishments located in New Delhi. The dispute was referred by the Chief Commissioner of Delhi to an industrial tribunal for determination. The first reference, identified as Industrial Dispute No 581 of 1959, was filed on 9 September 1959 and involved two hotels, namely Clarity’s Hotel and Nirula Hotel. The second reference, Industrial Dispute No 620 of 1959, related to United Coffee House and was filed on 12 December 1959. The tribunal consolidated these two references and heard them together. Of the ten demands presented by the employees, the tribunal rejected three specific demands: Demand 4, which sought provision of medical treatment; Demand 9, which called for a revision of the working hours of chowkidars; and Demand 10, which sought recognition or appointment of a Central Negotiating Committee at the level of an association or union. The remaining seven demands were at least partially allowed. The principal demands among those permitted involved a request for a wage structure that incorporated adequate provisions for regular increments, the establishment of a provident fund, the provision of gratuity, and the award of bonus for the financial years 1956‑57, 1957‑58, and 1958‑59. In addition, there were other subsidiary demands, the details of which would be discussed later.

The tribunal’s award gave rise to four appeals by special leave before this Court. Appeals numbered 609 and 610 of 1962 were filed by the employers, while appeals numbered 622 and 623 of 1962 were filed by the employees. For clarity, the court set out the broad features of the tribunal’s directions concerning the employees’ claims. The tribunal examined each employer’s claim for bonus for each of the three years in question, assessed the financial position of each employer for the relevant years, and determined the surplus available by applying the Full Bench Formula in each individual case. The tribunal also considered the employers’ requests for deductions of certain items, weighing them against the comments made by the employees. After accounting for usual prior charges and ascertaining the surplus, the tribunal issued directions for the payment of bonus for the three years, ordering payment for all three years in some cases and for only one or two years where the surplus did not justify a bonus for a particular year. Following the bonus determination, the tribunal proceeded to address the other demands made by the employees, including the claim made by the employees for suitable uniforms and other apparel according to

The Tribunal rejected the argument that the nature of duties of each individual workman should determine the entitlement to winter clothing. Instead, it directed that every management, except the Delhi Restaurant, must provide winter uniforms consisting of a woollen coat and a pair of woollen trousers to waiters, bearers, page boys, lift boys, peons, chowkidars and butlers once every three years. In addition, the Tribunal ordered that masalchis, sweepers and malis should receive a woollen jersey on the same three‑year basis. Regarding leave benefits, the Tribunal examined the claim for additional leave and concluded that there was no justification for granting a separate category of sick leave. It noted that the employers already observed three national holidays—January 26, August 15 and October 2—and held that three further holidays should be added, namely Holi, Dussehra and Diwali. On the question of statutory benefit schemes, the Tribunal observed that the provident fund scheme had been introduced by the employers in compliance with the applicable statute. The Tribunal rejected the employers’ contention that the existence of a provident fund scheme obviated the need for a gratuity scheme, and accordingly directed that a gratuity scheme be instituted.

Subsequently, the Tribunal turned to the complex issue of constructing an appropriate wage structure. It first considered the appropriate minimum wage. The managements had conceded before the Tribunal that the total pay packet for hotel employees should be Rs 70 per month inclusive of service charges, and that for restaurant employees it should be Rs 60 per month. After analysis, the Tribunal concluded that a fair and reasonable minimum total wage packet would be Rs 65 per month, comprising a basic wage of Rs 30 and a flat dearness allowance of Rs 35 payable to each employee. Having fixed this flat allowance, the Tribunal took into account that many establishments provided food and accommodation to certain workers. Accordingly, it directed that a deduction of Rs 15 be made from the dearness allowance for food, a deduction of Rs 51 for accommodation, and a deduction of either Rs 7 or Rs 3.5 for tea, depending on whether tea was supplied twice or once a day. In effect, while the flat dearness allowance remained Rs 35, appropriate deductions were to be made for amenities supplied by the employers. The Tribunal then classified the workmen into three categories—unskilled, semi‑skilled and skilled—and further divided the skilled category into Grade II and Grade I. Based on this classification, the Tribunal prescribed a distinct wage scale for each category, thereby establishing a structured remuneration system for the employees.

The Tribunal, while dealing with the newly formulated wage scale, issued a series of detailed directions aimed at adjusting each employee onto that scale. It expressly stated that the adjustment process must not place any workman at a disadvantage; consequently, any employee who was receiving remuneration above the amount to which he would be entitled under the new scale was to continue receiving the higher amount. After laying down these protective measures, the Tribunal examined whether the award should operate retrospectively. It concluded that, although the award was formally pronounced on 16 March 1962, its operative date should be back‑dated to 1 January 1961. In a separate matter, the workmen of Claridge’s Hotel had claimed a share of the service charges collected by their employer. The Tribunal observed that, for the period preceding the reference, the employer had already distributed an amount equivalent to roughly three months’ wages out of the service charges, and therefore no further order was necessary for that earlier period. Nevertheless, the Tribunal directed the management of Claridge’s Hotel, effective 1 April 1962, to allocate eighty‑five per cent of the service charges it collected among the workmen on a proportional basis, calculated according to each workman’s basic wage for the relevant year. In summary, these were the principal directions the Tribunal issued in response to the partially allowed claims, covering both the wage‑scale adjustment and the distribution of service‑charge income.

The employer’s counsel, identified as Mr Pathak, argued before the Court that the Tribunal had erred by hearing the two hotels together with the eleven restaurants in a single proceeding. The contention was that hotels and restaurants differ fundamentally in character and therefore cannot be fairly combined for adjudication of the employees’ claims. Specifically, it was pointed out that hotels typically provide round‑the‑clock service, furnish residential accommodation to a number of staff, and incur a different pattern and magnitude of expenses compared with restaurants. On the basis of these distinctions, the employer maintained that the Tribunal had committed a basic error in treating the two categories of establishments as a single unit. The Court, however, was not persuaded by this line of reasoning. It noted that the industrial adjudication history in New Delhi’s catering sector had repeatedly grouped hotels and restaurants together for the purpose of a single award. For example, in 1950 a reference before Mr Dulat involved fourteen catering establishments, of which three were hotels and eleven were restaurants, and several of the restaurants present in the current dispute had also been part of that earlier reference. The Court further observed that, notwithstanding certain specific differences in the services rendered, both hotels and restaurants belong to the same broader catering trade. This commonality, together with the precedent of prior joint adjudications, undermined the employer’s argument that the Tribunal’s approach was erroneous.

The Court noted that the establishments involved in the reference are part of the broader catering trade. It observed that Mr. Nirula, who serves as the Secretary of the relevant Association, presides over an organization whose membership is open to both hotels and restaurants. The Court further pointed out that, with the sole exception of the Delhi Restaurant located at Karolbagh, all of the restaurants mentioned in the reference operate in Connaught Place, while Claridge’s Hotel is situated on Aurangzeb Road, an equally prominent locality. In view of these facts, the Court held that the restaurants and the hotels included in the present reference are conducting essentially the same type of business in roughly the same geographical area. Consequently, the Court found it desirable that the terms and conditions of service applicable to employees of these establishments be made as uniform as possible. Such uniformity, the Court explained, would not only promote peace and harmony between employees and their employers but also serve the interests of management by reducing the likelihood of labour migrating from one establishment to another. The Court acknowledged that it might have been possible to classify the restaurants according to the magnitude of their patronage, their general financial position, or their standing in the trade; however, it observed that no material on this point had been presented before the Tribunal, nor had any party suggested that such a classification would be feasible or appropriate. For this reason, the Court concluded that Mr. Pathak was not justified in attacking the award on the ground that the Tribunal had considered all the establishments together.

The Court then turned to the second argument vigorously advanced by Mr. Pathak on behalf of the employers. Mr. Pathak contended that, in assessing the financial position of the various managements, the Tribunal erred by assuming that wine shops and restaurants formed a single establishment. The Court observed that, in several instances, the same employer operates both a restaurant and a wine shop, and the argument advanced was that, for the purpose of determining service conditions, wine shops should have been treated as distinct units separate from restaurants. The Court recalled that the question of whether industrial establishments owned by the same management constitute separate units or a single establishment has been examined by this Court on multiple occasions. It stated that several factors are relevant in resolving this issue, but emphasized that the significance of each factor may vary from case to case. Accordingly, the determination of whether two units constitute one establishment or are truly separate and independent must be made on the facts specific to each case. The Court noted that Mr. Pathak maintained that the Tribunal was in error in holding that restaurants cannot exist without wine shops and that there is functional integrality between them. It further observed that, while it may be conceded that the Tribunal’s observation that there is functional integrality between a restaurant and a wine shop and that the restaurants cannot exist without wine shops is

In this case the Court observed that the contention that the test of functional integrality – that is, whether one unit can exist without the other – is always decisive is not strictly accurate or correct. While the Court acknowledged that the question of functional integrality may be relevant in some circumstances, it emphasized that it cannot be given universal weight without first considering the specific facts of each case. Accordingly, the Court declined to accept the argument that the mere absence of functional integrality, or the ability of the two units to operate independently, necessarily demonstrates that they are separate establishments and cannot be treated as a single industrial establishment. The Court noted that an elaborate discussion of this point was unnecessary because it had already examined the same issue in several earlier decisions, namely Associated Cement Companies Ltd. v. Their Workmen (1); Pratap Press, etc. v. Their Workmen (2); Pakshiraja Studios v. Its Workmen (3); South India Millowners' Association v. Coimbatore District Textile Workers Union (4); Fine Knitting Co. Ltd. v. Industrial Court (5); and D.C.M. Chemical Works v. Its Workmen (6). Turning then to the facts of the present dispute, the Court found it to be common ground that wherever the employer operated both a restaurant and a wine shop, the persons who had an interest in the business were the same partners, and that the capital invested in each unit was identical. The Court noted that before 1956 the two activities had not been conducted separately, but that the introduction of partial prohibition in New Delhi that year required the wine‑shop operation to be separated because wine could no longer be sold in the restaurant. It was significant, however, that the licence to run the wine shop had been granted on the basis that the management had previously been operating a wine shop before prohibition was imposed. The Court further observed that licences for wine shops have been issued in many cases to previously existing restaurants on the condition that the wine‑shop business be conducted separately in compliance with the prohibition rules. Although many establishments maintain separate accounts and independent balance‑sheets for the restaurant and the wine shop, the Court held that this practice was not decisive, because it might simply reflect a desire to monitor the profitability of each line of business at different stages. Ultimately, the Court pointed out that the profits and losses of the two units are usually pooled together. In general terms, the Court concluded that there exists unity of ownership, unity of finance, unity of management, and unity of labour, as employees can be transferred from the restaurant to the wine shop and vice versa. Moreover, the Court found that, to date, no establishment had registered the wine shop and the restaurant separately under Section 5 of the Delhi Shops and Establishments Act, 1954 (No. VII of 1954). When Mr. Nirula, the Secretary of the Employers’ Association, was asked to register his wine shop separately, he protested, arguing that separate registration of the various departments was unnecessary, thereby indicating that the wine shop was regarded by the establishment as merely one department of a larger enterprise.

In this case, the Court observed that the establishment regarded the wine shop only as one of its internal departments and did not register it as a separate establishment, a fact that contradicted the employer’s claim that wine shops operated as independent units. The Court therefore rejected the employer’s contention that the Tribunal had erred in holding that the wine shops and the restaurants formed part of the same industrial establishment. Turning to the financial situation of the various establishments, the Court noted that the Tribunal had carefully examined the balance‑sheets for the three years in which bonus was claimed—namely 1956‑57, 1957‑58 and 1958‑59—and had considered the profit and loss statements of each establishment for those periods. The Court explained that when a wage structure is being devised, an industrial adjudicating body must take account of the employer’s overall financial position because a wage scheme that includes scales of increment is a long‑term commitment and the Tribunal must be satisfied that the financial burden imposed will not exceed the employer’s capacity. By contrast, the minimum wage does not require such a consideration, since every industrial employer is obligated to pay the basic minimum wage to his workers. The Court pointed out that the Tribunal had recognised this principle and, after reviewing the accounts placed before it, concluded that the establishments showed uniform prosperity and that, except for the Delhi Restaurant, all could be properly characterised as established concerns. The Court further noted that, although various establishments in the Delhi region maintained pay scales for workmen, there had been no prior instances of pay‑scale introductions in restaurants, apart from the award made by Mr Dulat. The employer’s argument that the possibility of total prohibition being introduced in New Delhi should have been taken into account when deciding the wage structure was again raised before the Tribunal and reiterated before the Court. The Court held that the Tribunal’s award could not be invalidated on the ground that it had not given sufficient weight to the employer’s apprehension of an imminent total prohibition that might affect trade prosperity. The Tribunal had observed that even after the partial introduction of prohibition, profits of the trade had not suffered any adverse effect; rather, they exhibited an upward trend, and no evidence had been produced to substantiate a claim that a near‑future total prohibition would depress the business. Consequently, the Court concluded that speculative considerations about a possible future total prohibition could not influence the determination of the wage problem in the present proceedings.

In this case the Court observed that the possibility of a total prohibition on alcohol being introduced in New Delhi in the near future was a matter of speculation. The employees argued that all signs indicated that such a total prohibition would not be implemented, and the Tribunal, an opinion that the Court also endorsed, found it unnecessary to speculate on the matter. The Court held that if, at a later date, a total prohibition were actually introduced and that prohibition materially damaged the profitability of the trade, the employers would then be entitled to raise a dispute seeking a reduction in the wage structure. The employers would have to demonstrate that the prohibition had weakened their financial position to such an extent that they could no longer sustain the wage obligations imposed by the present award; only then would the issue be examined on its merits. Consequently, the Court concluded that a mere hypothetical consideration of a future total prohibition could not influence the resolution of the wage issue in the present proceedings. Turning to the question of bonus, the Court noted that counsel for the employers, Mr Pathak, contended that the Tribunal erred in cutting the remuneration claimed by partners who actively managed and supervised their establishments. Each partner had claimed a monthly amount of one thousand rupees, but the Tribunal had reduced the claim to five hundred rupees per month, and in one instance directed that a total of five hundred rupees per month be paid collectively to three partners. The employers argued that this interference was wholly unjustified. In addressing this contention, the Court emphasized that when it entertains appeals in industrial matters under Article 136 of the Constitution, it does not act as a factual appellate court. The Court intervenes only on general questions of law that require clarification for the guidance of industrial adjudication nationwide. Decisions of Industrial Tribunals on factual matters and on conclusions within their discretionary jurisdiction are ordinarily not subject to revision by the Court under Article 136. Moreover, the Court observed that the employers had not sufficiently proved their claim for partner remuneration with adequate evidence, a finding that the Tribunal had made and which appeared well‑founded on the record. The Court further noted that, in some instances, the claimed remuneration amounts were not reflected in the accounts, and the claim was advanced solely for the purpose of applying the Full Bench Formula. On this basis, the Court held that Mr Pathak was not justified in seeking relief under Article 136. The Court also recorded that the Attorney‑General for the employees described the award concerning bonus as inadequate, asserting that larger amounts should have been permitted and challenging the Tribunal’s calculations.

In this case, the Court observed that the claim by the employers that income‑tax should be treated as a prior charge conflicted with the recent decision in Tulsidas Khimji v. Their Workmen. That decision held that a partnership firm is not a legal person within the meaning of the Industrial Disputes Act; rather, the individual partners constitute the employers. Consequently, when determining income‑tax liability, the Court must consider the tax payable by each partner on the basis of the firm’s business alone, separate from any other sources of income or loss, recognizing that the notional tax amount differs from the actual amount, though it is not completely unrelated. The counsel for the employers, Mr. Pathak, acknowledged that the calculations made by the Tribunal regarding income‑tax in applying the Full Bench Formula were erroneous, as noted in the citation (1)(1962) 1 L.L.J. 435, 441. This acknowledgement weakens his argument that the bonus awarded should be set aside or reduced. Although the employees contend that an additional bonus should be granted on this ground, the Court was not persuaded that a fresh calculation of income‑tax consistent with the Tulsidas Khimji decision would warrant any increase to the bonus already awarded by the Tribunal for the years in question. The Court then turned to the issue of the wage structure. The employers had conceded that the wage package for hotel employees should be Rs 70 per month, inclusive of service charges, and that for restaurant employees should be Rs 60 per month. The Tribunal, however, fixed the minimum wage package at Rs 65 per month. The Court found no reason to disturb this determination. Likewise, the Tribunal set a flat dearness allowance of Rs 35 per month and authorized appropriate deductions from that amount for amenities such as food, residence, and tea provided by the employers to certain employees; the Court again saw no basis for interference. The classification of workers into unskilled, semi‑skilled, and skilled categories was also deemed fully justified based on the material presented, and no evidence was found to challenge these classifications.

The primary dispute concerning the wage structure centred on the treatment of dearness allowance for waiters. Mr. Pathak argued vehemently that waiters should receive no dearness allowance because each waiter already earns tips ranging from Rs 50 to Rs 60 per month in the respective establishments. The Tribunal adopted the view that tips earned by waiters must be excluded when calculating dearness allowance, and in support of this position, it referred to a precedent decision of the Court. The Tribunal’s reasoning was that tips constitute a separate component of remuneration and should not reduce the entitlement to dearness allowance. The Court noted this approach but did not express any intention to overturn the Tribunal’s conclusion on the matter of tips and dearness allowance for waiters.

The Tribunal had relied on a decision of this Court in State Bank of India v. Their Workmen (1) to support its view that tips should be excluded from the calculation of dearness allowance. Mr Pathak argued that the Tribunal was plainly mistaken in invoking that decision for the purpose of dealing with the issue of tips, and he maintained that his objection was well founded. In State Bank of India this Court examined whether a bonus formed part of “remuneration” as defined in sections 2 and 10(1)(b)(2) of the Banking Companies Act, 1949, as then amended by Act XCV of 1956. The Court held that the term “remuneration” in section 10 was to be given its widest meaning and that, accordingly, it unquestionably encompassed a profit bonus. During the discussion of that case, the Court also referred incidentally to the English authority Mrottaslav v. Regent Street Florida Restaurant (2). That authority concerned the nature of tips and concluded that when a customer gives a tip to a waiter, the money immediately becomes the property of the waiter. The Court observed that the English decision demonstrated that the word “remuneration” must be interpreted in the context of the statute in which it appears and that the decision could not be used to narrow the scope of the expression employed in the relevant banking provision. Consequently, the Court found it unnecessary to treat the Mrottaslav decision as applicable to the present question of whether tips paid to waiters in hotels and restaurants should be disregarded when determining dearness allowance. By contrast, the Court noted that in Workmen of M/s A. Fingo’s Ltd. v. M/s A. Fingo’s Ltd. (3) the Labour Appellate Tribunal upheld an award ordering a deduction of Rs 15 per month from the dearness allowance payable to boys and butlers, on the basis of uncontradicted evidence that the average tip received by each boy or butler was about Rs 15 per month. Relying on that precedent, Mr Pathak submitted that the Tribunal ought to have taken into account the tips earned by waiters in hotels and restaurants and therefore should not have fixed a flat dearness allowance of Rs 35 per month for them. The learned Attorney‑General supported the Tribunal’s original finding and cited an earlier award made by the same Tribunal in a 1958 industrial dispute between the management of the Marina Hotel and its workmen, where the Tribunal likewise declined to consider tips in the determination of the wage structure, including dearness allowance.

The Tribunal adopted an identical position when it rendered its award in the 1960 industrial dispute involving the management of the Hotel Ambassador and its employees. Similarly, the learned Attorney‑General pointed to the compromise award dated 31 December 1959 between the Swiss Hotel and its workmen, arguing that it supported his proposition that tips should not be considered when determining dearness allowance. The matter consequently presented before the Court required a careful examination of the arguments raised by both parties. The employees argued that dearness allowance exists to provide a suitable addition to basic wages so as to neutralise increases in the cost of living. They further asserted that an employer cannot avoid this obligation simply because customers give tips to the employees. According to the employees, tips are paid by customers, not by the employer, and are intended for the service, promptness, smartness and efficiency displayed by the waiter. They also pointed out that the amount of tips is variable and uncertain, making it unreasonable to incorporate such an indefinite factor when fixing dearness allowance. Conversely, the employers contended that tips constitute a customary requirement in all restaurants and hotels, and that they are paid not merely to individual waiters but to waiters employed at a particular establishment. According to the employers, the tips received by employees are incidental to their work as waiters and cannot be entirely separated from the employment relationship. While it may be true in theory and law that tips become the property of the waiters, the employers argued that they are obtained as an incident of employment. Consequently, they submitted that it would be unreasonable to disregard the tips when fixing the dearness allowance. In our view, addressing this issue should not follow a purely academic or doctrinaire methodology. Industrial adjudication concerning wage structures in hotels and restaurants must adopt a pragmatic approach that balances the legitimate demands of employees with the employer’s interests without causing injustice. If the purpose of dearness allowance is to neutralise the rise in the cost of living, it would be purely doctrinaire to ignore the fact that waiters regularly receive some amount of tips from customers. Accordingly, we consider it inappropriate to treat the tips received by waiters as wholly irrelevant to the determination of the dearness allowance issue.

In this case the Court observed that it would be inappropriate to compute the amount of tips received by waiters and then treat that amount, either wholly or partially, as a replacement for the dearness allowance. The Court stated that the only permissible course was to acknowledge the fact that tips are received and to make a suitable adjustment in the dearness allowance on that basis. It was further held that the tips could not be regarded as payments made by, or on behalf of, the employers; otherwise the employers could plausibly argue that those tips should be taken into account while fixing a basic wage, a contention that the Court found to be untenable. The Court recognised that the quantum of tips varies and may be uncertain, but if the evidence presented by the parties satisfactorily demonstrated that each waiter invariably receives at least a certain minimum amount of tips, then it would not be unfair or unjust to incorporate that minimum amount into the calculation of the dearness allowance at a fixed rate. Such an approach, the Court reasoned, would not prejudice the employees’ claim for dearness allowance and would also be equitable to the employers.

The Court then proceeded to examine the evidence in order to determine a reasonable figure that could be regarded as the minimum tip a waiter is entitled to receive in each of the establishments before it. As is often the case, the witnesses examined by the management tended to exaggerate the figures, whereas the witnesses examined by the Union tended to understate them. According to the management witnesses, waiters received more than Rs. 60 per month in tips, while the Union witnesses claimed that the monthly tips ranged between Rs. 10 and Rs. 15. Some employers also contended that when their waiters were assigned to external service, the employers compensated them for the loss of tips by paying appropriate amounts, and they supported this claim with both documentary and oral evidence. The Court was not convinced by that evidence, finding it unreliable and the claim untenable, emphasizing that tips are always paid by customers and never by employers. The Court noted that, following the introduction of prohibition, the amount of tips paid to employees in hotels and restaurants had declined. Nevertheless, the Court concluded that each waiter receives at least Rs. 10 per month in tips. While this figure might underestimate the tip income of waiters employed in more prosperous establishments, the Court held that, in the absence of satisfactory and specific evidence for each establishment, it could not safely make a definitive finding that waiters receive more than Rs. 10 per month. Consequently, the Court accepted the principle that a reasonable deduction may be made in respect of waiters on the basis that they receive a minimum amount of tips from customers every day.

In this matter the Court observed that the evidence presented by the employers did not permit a definitive conclusion that every waiter in the various establishments earned more than ten rupees in tips each day. Consequently, the Court said it would not be safe or advisable to make a firm finding to that effect. Given the state of the evidence, the Court said it would be content to accept a general principle for the purpose of fixing the D. A. (daily allowance). The principle is that a reasonable deduction may be allowed for waiters on the basis that each waiter receives a minimum amount of tips from customers daily. Applying that principle, the Court indicated that it would not be unfair or unjust to order a deduction of ten rupees from the thirty‑five rupee monthly amount that is payable to waiters who receive tips. For those waiters who also receive food, tea and accommodation from their employers, the Court noted that a deduction of twenty‑seven rupees per month had already been ordered from the D. A. In respect of these waiters, the Court directed that an additional deduction of eight rupees may be made on account of tips, because the Court was convinced that such a deduction could be taken from the basic wage. Thus, the total deductions were set at ten rupees for tip‑receiving waiters and eight rupees for tip‑receiving waiters who already receive other benefits, on top of the previously ordered twenty‑seven rupee deduction.

In the second part of its analysis the Court turned to the gratuity scheme that had been framed by the Tribunal. Counsel for the employers, Mr. Pathak, contended that because the Employees’ Provident Fund Scheme had already been introduced in the establishments, it would be unfair to impose an additional liability on the employers in the form of a gratuity scheme. The Court noted that this argument had been raised before and had been consistently rejected. The Court explained that the purpose of the Provident Fund Scheme is different from the purpose of the Gratuity Scheme, and that where the employer’s financial position permits the introduction of both benefits there is no justification for denying employees the advantage of both schemes. The Court referred to the decisions in Bhuratkhand Textile Manufacturing Co. Ltd. v. Textile Labour Association, Ahmedabad, (1) and Garment Cleaning Works v. Its Workmen (2) in support of this view. Moreover, the Court observed that when assessing the financial burden of a gratuity scheme, it is more important to consider the actual impact rather than a purely theoretical calculation. Citing its earlier judgment in Bharatkhand Textile Manufacturing Co. Ltd. (1), the Court described two methods of evaluating the burden: one is to capitalise the liability on an actuarial basis, which yields a heavy theoretical burden; the other is to examine the practical effect, which shows that only three to four percent of employees retire each year. The Court expressed the view that the practical approach should be preferred when judging the effect of the gratuity scheme on an employer’s finances. Accordingly, the Court concluded that the practical impact of the gratuity scheme was not excessive and that the scheme should be upheld.

The Court found no justification for accepting the submission advanced by Mr Pathak that the employers would be financially incapable of shouldering the practical burden imposed by the gratuity scheme, as was argued in Sone Valley Portland Cement Co. v. Its Workmen [1962] 1 L.L.J. 218. Turning to the substantive aspects of the scheme, the Court was convinced that certain alterations were necessary. The Tribunal’s scheme, as previously set out, provides that a workman who has served for less than two years is not entitled to any gratuity. For a workman with continuous service of two years or more, the entitlement is fifteen days’ basic pay for each completed year of service, subject to a maximum limit of twelve months’ pay, except where termination occurs by way of dismissal for misconduct involving moral turpitude. The Court noted that Mr Pathak’s first objection to this provision was that the phrase “involving moral turpitude” was unusual and could create complications; this objection was not contested by the learned Attorney‑General. Accordingly, the Court directed that the words “involving moral turpitude” be removed from the provision. Mr Pathak’s second objection concerned the two‑year minimum period, which he described as unduly liberal. The Court agreed that this criticism was well‑founded. The Court further observed that a distinction must be drawn between termination caused by the employer and termination resulting from the employee’s resignation. Consequently, the Court ordered that where termination is caused by the employer, the minimum period of service required for gratuity should be five years. In such cases, if the termination is due to misconduct that has caused financial loss to the employer, the loss must first be recovered from the gratuity payable, and any balance, if any, should be paid to the employee. Regarding resignation, the Court stipulated that an employee who resigns shall be eligible for gratuity only after having completed ten years of service. The rate of gratuity and the ceiling previously prescribed by the Tribunal were to remain unchanged. The Court also addressed the outstanding issue concerning the claim for a share of service charges at Claridge’s Hotel. It reiterated that the Tribunal had held that no direction was required for claims relating to service charges accrued prior to the award’s date. However, the Tribunal had attempted to issue a direction concerning the future division of service charges, a step that Mr Pathak argued exceeded the Tribunal’s jurisdiction because the matter had not been referred for adjudication. The Court noted this contention for further consideration.

The Court noted that paragraph (d) of the reference unmistakably supported Mr. Pathak’s contention because the clause was worded to ask whether the workmen were entitled to share the service charges that had been collected by various managements up to the date of reference of the dispute, and, if so, what percentage and what directions were necessary. The Court observed that it was clear from this wording that the matter referred to the Tribunal for adjudication did not extend to any period after the date of reference, a position that was not contested by any party. Accordingly, the Court held that the direction issued by the Tribunal concerning the future division of service charges had to be set aside. Mr. Pathak had also attempted to persuade the Court that the directions contained in the award relating to uniforms and holidays should be revised. The Court was not impressed by this argument, describing those issues as matters of detail that were properly within the Tribunal’s jurisdiction to consider on the merits, and stating that Mr. Pathak’s grievance raised no question of law that would justify interference with the Tribunal’s decision. The final point raised by Mr. Pathak concerned what he described as a retrospective operation of the award. The Court explained that the employees had made their demands on 1 October 1958 and that the references were made on 9 September 1959 and 12 December 1959 respectively. The award was pronounced on 16 March 1962 and directed that its provisions should take effect from 1 January 1961. Technically, this direction could not be characterized as retrospective because it took effect after the date of reference. Under section 17A(4) of the Industrial Disputes Act, 1947 (No. 14 of 1947), the Industrial Tribunal is permitted to name the date from which its award should operate, and it may, when it deems it fair and just, prescribe a date prior to the reference. When such a direction is issued, it may appropriately be described as retrospective. Apart from this technical observation, the Court found no reason to disturb the Tribunal’s choice to make the award operative from a later date, namely 1 January 1951. Consequently, the Court concluded that the appeals filed by the employers succeeded in part, insofar as the award’s provisions regarding dearness allowance, gratuity and the future distribution of service charges were modified, while the appeals filed by the employees failed and were dismissed. No costs were awarded. The Court allowed in part the civil appeals numbered 609‑610 of 1962 and dismissed the civil appeals numbered 622‑623 of 1962.