ivil Appeal Nos 2168 2569 of 1966 76 123 and 560 of 1967
Appeals by special leave from the Award dated June 30 1966 of the Industrial Tribunal Delhi in ID No 70 of 1958
ST Desai Rameshwar Nath and Mahinder Narain for the appellant in CA No 2168 of 1966 and respondents Nos 1 and 2 in CAs
Nos 123 and 560 of 1967
311 HR Gokhale AK Sen RP Kapur and 1
N Shroff for the appellant in CA No 2569 of 1966 and respondent No 3 in CAs
Nos 123 and 560 of 1967
B Sen 1
D Gupta MN Shroff for 1
N Shroff for the appellant in CA No 76 of 1967
MK Ramamurthi Madan Mohan Shyamala Pappu and Vineet Kumar for the appellant in CA No 123 of 1967 respondents Nos 1 a and 4a in CA No 2168 of 1966 respondent No 1 in CA No 2569 of 1966 respondent No 1 in CA No 76 of 1967 and respondent No 5 in CA No 560 of 1967
VC Parashar and OP Sharma for the appellant in CA No 560 of 1967 respondents Nos 1 b and 4b in CA No 2168 of 1966 respondent No 2 in CA No 2569 of 1968 and respondent No 2 in CA No 76 of 1967
The Judgment of the Court was delivered by Shah J
These appeals arise out of an award made by the Industrial Tribunal Delhi in ID Reference No 70 of 1958
The first three appeals are filed by the employers and the last two by the employees
By its award the Industrial Tribunal Delhi has framed two schemes relating to payment of gratuity to the workmen employed in four textile units in the Delhi region
The employers and the workmen are dissatisfied with the schemes and they have filed these appeals challenging certain provisions of the schemes
In the Delhi region there are four textile units the Delhi Cloth Mills which will be referred to
as DCM Swatantra Bharat Mills which will be referred to as SBM Birla Cotton Mills which will be referred to as BCM and Ajudhia Textile Mills which will be referred to as ATM The DCM and SBM are under one management
On March 4 1958 the Chief Commissioner of Delhi made a reference under sections 101d and 125 of the  relating to four matters in dispute first of which is as follows Whether a gratuity for retirement benefit scheme should be introduced for all workmen on the following lines and what directions are necessary in this respect  1
for service less than 5 years Nil
for service between 5 10 years 15 days  wages for every year of service
for service between 10 15 years 21 days  wages for every year of service
312 4
for service over 15 years one month s wages for every year of service
 The reference related to workmen only and did not apply to the clerical staff or mistries
There are two workmens  Unions in the Delhi region the Kapra Mazdoor Ekta Union hereinafter called Ekta Union  and the other the Textile Mazdoor Union
The Ekta Union made a claim principally for fixation of gratuity in addition to the benefit of provident fund admissible to the workmen under the Employees Provident Fund Act to be computed on the consolidated wages inclusive of dearness allowance
The Ekta Union submitted by its statement of claim that a gratuity scheme based on the region cum industry principle ie a uniform scheme applicable to all the four units be framed
The Textile Mazdoor Union also supported the claim for the framing of a gratuity scheme on the basis of the consolidated wages of workmen but claimed that the scheme should be unit wise
At the trial it appears that both the Unions pressed for a unit wise scheme of gratuity
The Tribunal entered upon the reference in respect of the fixation of gratuity scheme in February 1964 and made an award on June 30 1966 operative from January 1 1964
The award was published on August 4 1966
By the award two schemes were framed one relating to the DCM and SBM and another relating to the BCM and ATM
Under the second scheme the digit by which the number of completed year of service was to be multiplied in determining the total gratuity was smaller than the digit applicable in the case of the DCM and the SBM
The distinction was made between the two sets of units because the DCM and SBM were in the view of the Tribunal more prosperous units than the DCM and ATM The ATM it was found was a newcomer in the field of textile manufacture and had for many years been in financial difficulties
The DCM employs more than 8000 workmen in its textile unit the SBM has on its roll 5000 workmen the BCM has 6271 workmen and the ATM has 1500 workmen
The DCM and SBM have a common retirement benefit scheme in operation since the year 1940
Under the scheme gratuity payable to workmen is determined by the length of service before retirement
The scheme of gratuity in operation in the DCM and SBM is as that In case of retirement from service of the Mills as a result of physical disability due to over age or on account of death after a minimum of seven years 
313 service in the concern 7 years 
Rs 350 8 years 
Rs 425 9 years 
Rs 500 10 years 
Rs 575 11 years 
Rs 650 12 years 
Rs 725 13 years 
Rs 800 14 years 
Rs 875 15 years 
Rs 950 16 years 
Rs 1050 17 years 
Rs 1150 18 years 
Rs 1250 19 years 
Rs 1350 20 years 
Rs 1 500 The scale of gratuity it is clear is independent of the individual wage scale of the workman
In the BCM and ATM units there are no such schemes
Till the year 1958 there were no standardised wages in the textile industry
According to the Report of the Central Wage Board for the Cotton Textile Industry which was published on November 22 1959 there were in India 39 regions in which the textile industry was located
The basic monthly wages of the workmen in the year 1958 varied between Rs 18 in Patna and Rs 30 in various centers like Bombay Indore Madras Coimbatore Madurai Bhiwani Hissar Ludhiana Cannanore and certain regions in Rajasthan and Delhi
The Wage Board recommended in Paragraph 106 of its Report The Board has come to the conclusion that an increase at the average rate of Rs 8 per month per worker shall be given to all workers in mills of category I from 1st January 1960 and a further flat increase of Rs 2 per month per worker shall be given to them from 1st January 1962
Likewise an increase at the average rate of Rs 6 per month per worker shall be given to all the workers in mills of category 11 from 1st January 1960 and a further flat increase of Rs 2 per month per worker shall be given to them from 1st January 1962
These increases are subject to the condition that the said sums of Rs 8 and Rs 6 shall ensure not less than Rs 7 and Rs 5 respectively to the lowest paid and that the increase of Rs 2 from 1st January 1962 shall be flat for all Category I included the Delhi region
Since January 1 1962 the basic minimum wage in the Delhi region is therefore Rs 40Sup
CI69 3 314 according to the recommendations of the Wage Board
In Bombay City and Island including Kurla the basic wage according to the Report of the Wage Board was also Rs 30and by the addition of Rs 10 the basic wage of a workman came to Rs 40 
The workmen in other important textile centres also get the same rates
The Tribunal was of the view that the average basic wage of the workmen is Rs 60 since the implementation of the Wage Board in the Delhi region
No argument was advanced before this Court challenging the correctness of that assumption by the employers or the workmen
It was also common ground that practically uniform basic wage levels prevail in all the large textile centres like Bombay Ahmedabad Coimbatore and Indore
Besides the basic wage the workmen receive dearness allowance under diverse awards made by the Industrial Tribunals which seek to neutralize the cost of living index
 There is also a provident fund scheme under the Employees
Provident Fund Act 1962 whereunder 8 13 of the basic wage and the dearnear allowance and the retaining allowance for the time being in force is contributed by the employee
Besides there is a right to retrenchment compensation under the section 25 FFF and the Employees Insurance Scheme
In view of the observations of this Court in Burhanpur Tapti Mills Ltd vs Burhanpur Tapti Mills Mazdoor Sangh1 that It is no longer open to doubt that a scheme of gratuity can be introduced in concerns where there
already exist other schemes such as provident fund or retrenchment compensation
This has been ruled in a number of cases of this Court and recently again in Wenger  Co and others vs Their Workmen2 and Indian Hume Pipe Company Ltd vs Their Workmen3
It is held in these cases that although provident fund and gratuity are benefits available at retirement they are not the same and one can exist with the other no serious argument was advanced that the existence of these additional benefits disentitled the workmen to obtain benefits under a gratuity scheme if the employer is able to meet the additional burden
But on behalf of all the employers it was urged that 1 in determining the quantum of gratuity basic wage alone could be taken into account and not the consolidated wage and 2  it was necessary for the Tribunal to fix when introducing a gratuity scheme the age of superannuation
On behalf of the DCM SBM and BCM it was urged in addition that a uniform scheme applicable to the entire industry on the region cumindustry basis should have been adopted and not a scheme or schemes applicable to individual units
On behalf of the ATM 1  2 1963 II LLJ 403
3 1959 II LLJ 830 315 it was urged that its financial condition is not and has never been stable and the burden of payment of gratuity to workmen dying or disabled or on voluntary retirement from service or when their employment is terminated is excessive and the Unit was unable to bear that burden
It was also urged on behalf of the ATM that in view of a settlement which was reached between the management and workmen it was not open to the Tribunal to ignore the settlement and to impose a scheme for payment of gratuity in favour of the workmen in this reference
While broadly supporting the award of the Tribunal the workmen claim certain modifications
They claim that a shorter period of qualifying service for workmen voluntarily retiring should be provided and gratuity should be worked out by the application of a larger multiple of days for each completed year of service that the ceiling of gratuity should be related to a larger number of months  wages that gratuity should be awarded for dismissal even for misconduct that provision should be made for payment of gratuity to Badli workmen irrespective of the number of days for which they work in a year that the expression average of the basic wage should be appropriately clarified to avoid disputes in the implementation of the gratuity scheme and that the award should be made operative not from January 1 1964 but from the date of the reference to the Tribunal
The two schemes which have been flamed may be set out ANNEXURE A  Gratuity scheme applicable to the Delhi Cloth Mills and the Swatantra Bharat Mills  Gratuity will be payable to the employees concerned in this reference on the scale and subject to the conditions laid down below 1
On the death of an employee while in the service of the mill company or on his becoming physically or mentally incapacitated for further service a After 5 years continuous service and less than 10 years  service 12 days  wages for eachcompleted year of service
b After continuous service of 10 years 15 days  wages for each completed year of service
The gratuity will be paid in each case under clauses 1a and 1b to the employee his heirs or executors or nominee as the case may Provided that in no case will an employee who is in service on the date on which this scheme is brought 316 into operation be paid an mount less than what he would have been entitled to under the pre existing scheme of the Employees  Benefit Fund Trust
ii Provided further that the maximum payment to be made shall not exceed the equivalent of 15 months wages
iii Provided further that gratuity under this scheme will not be payable to any employee who has already received gratuity under the preexisting scheme of the Employees  Benefit Fund Trust
On voluntary retirement or resignation after 15 years  service 15 days  wages for each completed year of service
Provided that the maximum payment to be made shall not exceed the equivalent of 15 months  wages
On termination of service on any ground whatsoever except on the ground of misconduct As in clauses 1 a and 1 b above
Provided that the maximum payment to be made shall not exceed the equivalent of 15 months  wages
Definitions a Wages  The term wages in the scheme will mean the average of the basic wage plus the dearness allowance drawn during the 12 months next preceding death incapacitation voluntary retirements resignation or termination of service and will not include overtime wages
b Basic wages The term basic wage will have the meaning as defined in paragraph 110 of the Report of the First Central Wage Board for Cotton Textile Industry
c Continuous service means un interrupted service and includes service which may be interrupted on account of sickness authorised leave strike which is not illegal lock out or cessation of work which is not due to any fault on the part of the employee Provided that interruption in service upto six months  duration at any one time and 18 317 months duration in the aggregate of the nature other than those specified above shall not cause the employee to lose the credit for previous service in the Mills for the purpose of calculation of gratuity but at the same time shall not entitle him to claim benefit of gratuity for the period of such interruption
Service for the purposes of gratuity will include service under the previous management whether in the particular mill or other sister mill under the same management
d Resignation The word resignation will include abandonment of service by an employee provided he Submits his resignation within a period of three months from the first day of absence without leave
e Length of service For counting length of service  fraction of a year exceeding six months shall count as one full year and six months or less shah be ignored
Application for gratuity Any person eligible to claim payment of gratuity under this scheme shall so far as possible send a written application to the employer within a period of six months from the date its payment becomes due
Payment of gratuity The employer shall pay the amount of gratuity to the employee and in the event of his death before payment to the person or persons entitled to it under clause 1 above within a period of 90 days of the claim being presented to the employer and found valid
Claims by persons who are no longer in service Claims by persons who are no longer in service of the Company on the date of the publication of this award shall not be entertained unless the claims are preferred within six months from the date of publication of this award
Badli service Gratuity shall be paid for only those years of Badli service in which the employee has worked for not less than 240 days
318 9
Proof of incapacity In proof of physical or mental incapacity it will be necessary to produce a certificate from any one of the Medical Authorities out of a panel to be jointly drawn up by the parties
Nomination a Each employee shall within six months from the date of the publication of this award make a nomination conferring the right to receive the amount of gratuity that may be due to him in the event of his death before payment has been made
b A nomination made under sub clause a above may at any time be modified by the employee after giving a written notice of his intention of doing so
if the nominee pre deceases the employee the interest of the nominee shall revert to the employee who may make a fresh nomination in respect of such interest
 ANNEXURE B  Gratuity scheme applicable to the Birla Cotton Spg
 Wvg
Mills and the Ajudhia Textile Mills
Gratuity will be payable to the employees concerned in this reference on the scale and subject to the conditions laid down below 1
On the death oan employee while in the service of the Mill company or on his becoming physically or mentally incapacitated for further service a After 5 years continuous service and less than 10 years service One fourth month s wages for each competed year of service
b After continuous service of 10 years One third month s wages for each completed year of service
The gratuity will be paid in each case under clauses 1a and 1b to the employee his heirs or executors or nominee as the case may be
Provided that the maximum payment to be made shah not exceed the equivalent of 12 months  wages
On voluntary retirement or resignation after 15 years service On the same scale as in 1 b above
Provided that the maximum payment to be made shall not exceed the equivalent of 12 months  wages
On termination of service by the employer for any reason whatsoever eXcePt on the ground of misconduct As in clauses 1a and 1b above
319 provided that the maximum payment to be made shall not exceed the equivalent of 12 months  wages Clauses 4 to 10 of Annexure B  are the same I as in Annexure A  and need not be repeated Whether against the ATM the Tribunal was incompetent to make an award framing a scheme for payment of gratuity may first be considered
Counsel for the ATM urged that there was a settlement between the workmen and the management of the ATM in consequence of which the Tribunal was incompetent to make an award
The facts on which reliance was placed are these After the dispute was referred to the Industrial Tribunal there were negotiations between the management of the ATM and workmen represented by the two Unions and an agreement was reached the terms whereof were recorded in writing
Clauses 6 and 11 4 of the agreement relate to the claim for gratuity 6
The workmen agree not to claim any further increase in wages basic or dearness or make any other demand involving financial burdens on the Company either on their initiative or as a result of any award till such time as the Working of the mills results in profits
The parties hereto agree to jointly withdraw in terms of this settlement the following pending cases and proceedings before the Courts Tribunals and Authorities and  more especially      4 With regard to ID No 70 of 1958 the workers agree not to claim any benefits that may be granted under the above reference by the Hon ble Industrial Tribunal in case the award is
given in favour of the workmen subject to clause 7 above It is common ground that reference to el 7 is erroneous it should be to cl 6 The workmen and the management of the unit submitted an application before the Tribunal on December 28 1959 admitting that there had been an overall settlement of all the pending disputes between the management of ATM and its workmen represented by the two Unions and requested that an interim award be made in terms of the agreement insofar as the dispute related to the ATM No order was passed by the Tribunal on that application
On June 4 1962 the Manager of the ATM applied to the Tribunal that an interim award be pronounced in terms of the agreement
The workmen had apparently changed their attitude by that time and filed a written statement and requested that the prayer contained in paragraph 3 of the application be rejected 320 as impermissible in law
The Tribunal made an order on November 26 1962 and observed  the only interpretation that can be given to clause 114 of the settlement read with clause 7 is that the workers of the Ajudhia Textile Mills had bound themselves not to claim any benefits that might be granted by the Tribunal in the award on the present reference if it turns out to be in favour of the workmen unless and until the working of the Mills results in profit
The fact that the passing of an award on the demands was envisaged under the settlement goes to show that the demands were to be adjudicated upon in any case
The main case will now proceed in respect of all the mills and the effect of the settlement and of the application dated 28th December 1959 and of the 5th July 1962 will be considered at the time of the final award
 But in making the final award the Tribunal did not specifically refer to the settlement
The terms of cl 6 of the settlement clearly show that if it be found that the ATM had acquired financial stability it will be liable to pay gratuity to the workmen
We are unable to agree with the contention of counsel for the ATM that it was intended by the parties that the adjudication proceedings against the ATM should be dropped and after the ATM became financially stable a fresh claim should be made by the workmen on which a reference may be made by the Government for adjudication of the claim for gratuity against the ATM
The contention by the management of the ATM that the Tribunal was incompetent to determine the gratuity payable to the workmen of the ATM must therefore fail
The other contention raised on behalf of the ATM that its financial position was unstable need not detain us
The Tribunal has held that the ATM was working at a loss since the year 1953 54 and the losses aggregated to Rs 622 lakhs in the year 1958 59 but thereafter the financial position of the Unit improved
The trading account for the period ending March 31 1960 showed profits amounting to Rs 310 lakhs
In 1960 61 there was a surplus of Rs 1118 lakhs out of which adjusting the depreciation development rebate reserve and reserve for bad and doubtful debts there was a balance of Rs 710 lakhs
In 1961 62 the net profits of the Unit amounted to Rs 748 lakhs and the ATM distributed Rs 52500 as dividend
In 1962 63 there was a gross profit of Rs 418 lakhs and after adjusting depreciation and development rebate reserve there was a net deficit of Rs 30517 
In 1963 64 there was a gross profit of Rs 1429 lakhs and after adjusting depreciation reserve for doubtful debts bonus to employees and development rebate reserve there re 321 mained a net profit of Rs 471 lakhs
The Tribunal observed that by 1961 62 all previous losses of the Unit were wiped out and that even during the year 1962 63 in which there was labour unrest the gross profits were substantial and taking into consideration the reserves built by the Company the picture was not disheartening and from the great progress that had been made since 1959 60 there was every reason to think that the Mill had achieved stability and reasonable prosperity and that it had an assured future and the Company was in a position to meet the burden of a modest gratuity scheme
We see no reason to disagree with the finding recorded by the Tribunal on this question
On behalf of the DCM SBM and BCM it was urged that normally gratuity schemes are framed on the region cum dustry principle ie a uniform scheme applicable to all Units in an industry in a region is framed and no ground for departure from that rule was made out
It was urged that this Court has accepted invariably the region cum industry principle in fixing the rates at which gratuity should be paid
In our judgment no such rule has been enunciated by this Court
In Bharatkhand Textile Mfg Co Ltd vs Textile Labour Association Ahmedabad1 this Court in dealing with the question whether the Industrial Court had committed an error in dealing with the claim for gratuity on industry wise basis negatived the contention of the employers that the unit wise basis was the only basis which could be adopted in fixing the rates of gratuity
It was observed at p 345 Equality of competitive conditions is in a sense necessary from the point of view of the employers themselves that in fact was the claim made by the Association which suggested that the gratuity scheme should be framed on industry wise basis spread over the whole of the country
Similarly equality of benefits such as gratuity is likely to secure contentment and satisfaction of the employees and lead to industrial peace and harmony
if similar gratuity schemes are framed for all the units of the industry migration of employees from one unit to another is inevitably checked and industrial disputes arising from unequal treatment in that behalf are minimaised
Thus from the point of view of both employers and employees industry wise approach is on the whole desirable
 It is clear that the Court rejected in that case the argument that rates of gratuity should be determined unit wise the Court did not rule that in all cases the region cum industry principle should be adopted in fixing the rates of gratuity
That was made explicit in a later judgment of this Court Burhanpur Tapti Mills Ltd vs 1  322 Burhanpur Tapti Mills Mazdoor Sanghx
This Court observed at p 456  it has been laid down by this Court that there are two general methods of fixing the terms of a gratuity scheme
It may be fixed on the basis of industry cum region or on the basis of units
Both systems axe admissible but regard must be had to the surrounding circumstances to select the right basis
Emphasis must always be laid upon the financial position of the employer and his profit making capacity whichever method is selected In Garment Cleaning Works vs Its Workmen1 this Court observed at p 713  it is one thing to hold that the gratuity scheme can in a proper case be flamed on industry cum region basis and another thing to say that industry cum region basis is the only basis on which gratuity scheme can be framed
In fact in a large majority of cases gratuity schemes are drafted on the basis of the units and it has never been suggested or held that such schemes are not permissible
 The Tribunal in the award under appeal observed There are   certain peculiar features in the textile industry in this region which militate against an indnstry cum region approach
Apart from the fact that one of the four units namely the Ajudhia Textile Mills is a much weaker unit than the rest and has passed through a chequered career during its existence it has to be borne in mind that two of the units namely DCM and SBM which axe sister concerns already have some sort of a gratuity scheme providing for two important retiral benefits namely death and physical disablement on a scale which is independent of wage variations and is not unsubstantial at least for categories in the lower levels
 The Tribunal further observed if a common scheme is framed for the entire textile industry at Delhi ie for all the four units the quantum of benefits under that scheme will naturally have to be much lower in consideration of the financial condition of the Ajudhia Textile Mill than if a unit wise scheme is framed
Moreover in a common scheme of gratuity the quantum of benefits to be provided will have to be 1 2  1961 I LLJ 513
323 lower than the benefits already available to workmen in the DCM and SBM units for the most important contingencies for which gratuity benefits are meant namely death and retirement on account of physical or mental incapacity
Such a lowering of the quantum of benefits would not in my view be desirable as it would create legitimate discontent
 In our judgment no serious objection may be raised against the reasons set out by the Tribunal in support of the view that unitwise approach should be adopted in the reference before it and not the region cum industry approach
No case is thereore made out for interference with the award made determining the rates of gratuity unit wise
We also agree with the Tribunal that on the terms of the reference it was incompetent to fix the age of superannuation forworkmen
We are unable to hold that a gratuity scheme may be implemented only if the age of superannuation of the workmen is determined by the award
Support was sought to be derived by counsel for the employers in support of his plea from the observations made by this Court in Burhanpur Tapti Mills Ltd s caseD where in examining the nature of gratuity it was observed The voluntary retirement of an inefficient or old  or worn out employee on the assurance that he is to get a retiral benefit leads to the avoidance of industrial disputes promotes contentment among those who look for promotions
 draws better kind of employees and improves the tone and morale of the industry
It is beneficial all round
It compensates the employee who as he grows old knows that some compensation for the gradual destruction of his wage earning capacity is being built up
By inducing voluntary retirement of old and worn out workmen it confers on the employer a benefit akin to the replacing of old and worn out machinery
 There is in our judgment nothing in these observations which justifies the view that a gratuity scheme cannot be effective unless it is accompanied by the fixation of the age of superannuation for the workmen in the industry
There is another objection to the consideration of this claim made on behalf of the employers
By the express terms of reference the Tribunal is called upon to adjudicate on the question of fixation of gratuity there is no reference either expressly or by implication to the fixation of the age of superannuation and in the absence of any reference relating to the fixation of the age of 1 1965 1 LLJ 453
324 superannuation the Tribunal was not competent to fix the age of superannuation
A gratuity scheme may in our judgment be implemented even without fixing the age of superannuation
The gratuity scheme in operation in the DCM and SBM has been effectively in operation without any age of superannuation for the workmen in the two units
An enquiry into the question of fixing the age of superannuation did not arise out of the terms of reference
No such claim was made by workmen and  even in the written statement filed by the employers no direct reference was made to the fixation of the age of superannuation nor was there any plea that before framing a gratuity scheme the Tribunal should provide for the age of superannuation
We agree with the Tribunal that fixation of the age of superannuation was not incidental to the framing of the gratuity scheme and it was neither necessary nor desirable that it should be fixed
Counsel for the employers urged that the Tribunal committed a serious error in relating the computation of gratuity payable to the workmen on retirement on the consolidated monthly wage and not on the basic wage
Gratuity in its etymological sense means a gift especially for services rendered or return for favours received
For some time in the early stages in the adjudication of industrial disputes gratuity was treated as a gift made by the employer at his pleasure and the workmen had no right to claim it
But since then there has been a long line of precedents in which it has been ruled that a claim for gratuity is a legitimate claim which the workmen may make and which in appropriate cases may give rise to an industrial dispute
In Garment Cleaning Works  case1 it was observed that gratuity is not paid to the employees gratuitously or merely as a matter of boon
It is paid to him for the service rendered by him to the employer
The same view was expressed in Bharatkhand Textile Mfg Ltd s case2 and Calcutta Insurance Ltd vs Their Workmena
Gratuity paid to workmen is intended to help them after retirement on superannuation death retirement physical incapacity disability or otherwise
The object of providing a gratuity scheme is to provide a retiring benefit to workmen who have rendered long and unblemished service to the employer and thereby contributed to the prosperity of the employer
It is one of the efficiency devices  and is considered necessary for an orderly and humane elimination  from industry of superannuated or disabled employees who but for such retiring benefits would continue in employment even though they function inefficiently
It is not paid to an employee gratuitously or merely as a matter of boon it is paid to him for long and meritorious service rendered by him to the employer
1 2  3 1967 II LLJ 1
325 On the findings recorded by the Tribunal all the textile units in the Delhi region are able to meet the additional financial burden resulting from the imposition of a gratuity scheme
The DCM and SBM have their own schemes which enable the workmen to obtain substantial benefit on determination of employment
The BCM though a weaker unit is still fairly prosperous and is able to bear the burden so also the ATM
But the important question is whether these four units should be made liable to pay gratuity computed on the consolidated wage ie basic wage plus the dearness allowance
The Tribunal was apparently of the view that in determining the question the definition of the word wages
 in the industrial Disputes Act 1947 would come to the aid of work men
The expression wages as defined in section 2rr of the means all remuneration capable of being expressed in terms of money which would if the terms of employment expressed or implied were fulfilled be payable to a workman in respect of his employment or of work done in such employment and includes among other things such allowances including dearness allowance as the workman is for the time being entitled to
But we are unable to hold that in determining the scope of an industrial reference words used either in the claim advanced or in the order of reference made by the Government under section 10 of the must of necessity have the meaning they have under the 
Merely because the expression wages includes dearness allowance within the meaning of the  the Tribunal is not obliged to base a gratuity scheme on consolidated wages
The Tribunal has observed that the basic average wage of a workman in the textile industry in the Delhi region may be taken at Rs 60 per month and the dearness allowance at Rs 100per month and even if full one month s basic wage is adopted as the minimum quantum of benefits to be allowed in the case of wage group with service of 5 years and more the scale of benefit would be very much lower than the present scale in the two contingencies provided in the Employees Benefit Fund Trust Scheme in operation in the DCM and SBM And observed the Tribunal In view of the limitations of the terms of reference the quantum cannot exceed 15 days  wages for every year of service from 5 to 10 years and 21 days  wages for every year of service from 10 15 years
Any schemes framed within the limitations of the terms of reference on the basis of basic wage alone will therefore mean a scale of benefits much lower than even the present scheme under the Employees Benefit Fund Trust
Such 326 a scheme cannot therefore be framed without causing grave injustice and acute discontent because it will mean the deprivation of even the present scale of benefits in the case of a large body of workers
In order to maintain so far as possible the present level of benefits I have therefore no alternative but to frame for these two units a scheme based on basic wage plus dearness allowance
 A scheme of gratuity based on consolidated wages was also justified in the view of the Tribunal because it was also necessary to compensate for the ever diminishing market value of the rupee
The Tribunal did however observe that normally gratuity is based not on the consolidated wage but on basic wage
But since 13000 workmen out of a total of 20000 workmen in the region would stand to lose the benefits granted to them under a voluntary scheme introduced by the DCM and SBM a departure from the normal pattern should be made and gratuity should be based on the consolidated monthly wage
In our judgment the conclusion of the Tribunal cannot be supported
The primary object of industrial adjudication is it is said to adjust the relations between the employers and employees or between employees inter se with the object of promoting industrial peace and a scheme which deprives workmen of what has
been granted to them by the employer voluntarily would not secure industrial peace
But on that account the Tribunal was not justified in introducing a fundamental change in the concept of a benefit granted to the workmen in the textile industry all over the country by numerous schemes
 The appropriate remedy is to introduce reservations protecting benefits already acquired and to frame a scheme consistent with the normal pattern prevailing in the industry
We consider it fight to observe that in adjudication of industrial disputes settled legal principles have little play the awards made by industrial tribunals are often the result of ad hoc determination of disputed questions and each determination forms a precedent for determination of other disputes
An attempt to search for principle from the law built up on those precedents is a futile exercise
To the Courts accustomed to apply settled principles to facts determined by the application of the judicial process an essay into the unsurveyed expanses of the law of industrial relations with neither a compass nor a guide but only the pillars of precedents is a disheartening experience
The Constitution has however invested this Court with power to sit in appeal over the awards of Industrial Tribunals which are it is said rounded on the somewhat hazy background of maintenance of industrial peace which secures the prosperity of the industry and improvement of the conditions of workmen employed in the industry and in 327 the absence of principles precedents may have to be adopted as guides some what reluctantly to secure some reasonable degree of uniformity of harmony in the process
But the branch of law relating to industrial relations the temptation to be crusaders instead of adjudicators must be firmly resisted
It would not be out of place to remember the statement of the law made in a different context but nonetheless appropriate here by Douglas J of the Supreme Court of the United States in United Steel Workers of America vs Enterprise Wheel and Car Corporation1  as arbitrator does not sit to dis pense his own brand of industrial justice
He may of course look for guidance from many sources yet his award
is legitimate only so long as it draws its essence from the collective bargaining agreement
When the arbitrator s words manifest an infidelity to this obligation courts have no choice but to refuse enforcement of the award
 We may at once state that we are not for a moment suggesting that the law of industrial relations developed in Our country has proceeded on lines parallel to the direction of the law in the United States
One of the grounds which appealed to the Tribunal in relating to the rate of gratuity to the consolidated wage was the existence of a gratuity scheme in the DCM  SBM and the assumption that the Tribunal in adjudicating a dispute is always in exercise of its jurisdiction limited when determining the rate of gratuity to the multiple number of days of service in the order of reference and cannot depart therefrom
We are unable to hold that Industrial Tribunal is subject to any such restriction
Its power is to adjudicate the dispute
It cannot proceed to adjudicate disputes not referred but when called upon to adjudicate whether a certain scheme on the lines indicated should he framed the basic guidance cannot be deemed to impose a limit upon its jurisdiction
As already stated gratuity is not in its present day concept merely a gift made by the employer in Iris own discretion
The workmen have in course of time acquired a right to gratuity on determination of employment provided the employer can afford having regard to his financial condition to pay it
There is undoubtedly no statutory direction for payment of gratuity as it is in respect of provident fund and retrenchment compensation
The conditions for the grant of gratuity are as observed in Bharatkhand 1  325 Textile Mfg Co Ltd s case1 i financial capacity of the employer ii his profit making capacity iii the profits earned by him in the past iv the extent of his reserves v the chances of his replenishing them and vi the claim for capital invested by him
But these are not exhaustive and there may be other material considerations which may have to be borne in mind in determining the terms and conditions of the gratuity scheme
Existence of other retiring benefits such as provident fund and retrenchment compensation or other benefits do not destroy the claim to gratuity its quantum may however have to be adjusted in the light of the other benefits
We may repeat that in matters relating to the grant of gratuity and even generally in the settlement of disputes arising out of industrial relations there are no fixed principles on the application of which the problems arising before the Tribunal or the Courts may be determined and often precedents of cases determined adhoc are utilised to build up claims or to resist them
It would in the circumstances be futile to attempt to
reduce the grounds of the decisions given by the Industrial Tribunals the Labour Appellate Tribunals and the High Courts to the dimensions of any recognized principle
We may briefly refer to a few of the precedents relating to the grant of gratuity
In May and Baker India Ltd vs Their Workmen2 the claim of the workmen to fix gratuity on the basis of gross salary was rejected by the Industrial Tribunal and the quantum was related to basic salary ie excluding dearness allowance
The view taken by the Tribunal was affirmed by this Court
In British India Corporation vs Its Workmen3 the existing gratuity scheme directed payment of gratuity in terms of consolidated wages
The Tribunal however modified the scheme while retaining the basis of consolidated wages which was held to be justified and reasonable
This Court observed that prima facie gratuity is awarded not by reference to consolidated wages but on basic wages and the Tribunal had made a departure from that
But in the view of the Court no interference with the scheme framed by the Tribunal was called for
In British Paints India Ltd vs Its Workmen4 the Court followed the judgment in May and Baker India Ltda that it would be proper to follow the usual pattern of fixing the quantum of gratuity on basic wage excluding dearness allowance
But the same principle was not adhered to in all cases
For instance in Hindustan Antibiotics Ltd vs Their Workmen5 it was observed 1  2 1961 II LLJ 94 SC
3 1965 II LLJ 556 SC
4 1966 I LLJ 407
5 1967 I LLJ 114 SCAIR 329 The learned counsel for the Company then argued that there is a flagrant violation or departure from the accepted norms in fixing the wage structure and the dearness allowance and therefore as an exceptional case we should set aside the award of the Tribunal and direct it to
re fix the wages
 In that case the Tribunal had awarded gratuity related to consolidated wages and without any contest the order of the Tribunal was confirmed
In Remington Rand of India vs The Workmen1 it was contended on behalf of the employer that the Tribunal was not justified in awarding gratuity on the basis of consolidated wages and should have awarded it on the basic wages alone
In dealing with that plea this Court Observed that the Tribunal was on the facts of the case justified in proceeding in that way
It is not easy to extract any principlefrom these cases as precedents they are conflicting
If the matter rested there we could not interfere with the conclusion of the Tribunal but the Tribunal has failed to take into account the prevailing pattern in the textile industry all over the country
The textile industry is spread over the entire country in pockets some large other small
There are large and concentrated pockets in certain regions and smaller pockets in other regions
Except in two or three of the smaller States textile units are to be found all over the country
It is a country wide industry and in that industry except in one case to be presently noticed gratuity has never been granted on the basis of consolidated wages
Out of 39 centres in which the textile industry is located there is no centre in which gratuity
payable to workmen in the textile industry pursuant to awards or settlements is based on consolidated wages
In the two principal centres viz Bombay and Ahmedabad schemes for payment of gratuity to workmen in the textile industry the rates of gratuity are related to basic wages
The BCM have tendered before the Tribunal a chart setting out the names of textile units in which the gratuity is paid to the workmen on basic wages
These are the Textile Units Bhavnagar Gujarat Shahu Chhatrapati Mills Kolhapur Maharashtra Jivajirao Cotton Mills Gwalior Madhya Pradesh Madhya Pradesh Mill owners Association Indore Bombay Ahmedabad Gujarat New Sherrock Spg
 Wvg
Co Ltd Nadiad Gujarat Raja Bahadur Motilal Mills Poona Maharashtra Shree Gajanan Wvg
Mills Sangli Maharashtra TIT Bhiwani Haryana Jagatjeet Cotton Mills Phagwada Punjab 36 Textile Mills in West Bengal and Umed Mills Rajasthan
It is true that the chart does not set out the gratuity schemes if any in all the 39 centres referred to in the Report of the First Wage Board but the chart relates to a fairly representative segment of the industry
No evidence has been 1 1968 I LLJ 542
Cl69 4 330 placed before the Court to prove that in determining gratuity payable under any other scheme in a textile unit the rate is related to consolidated wages
The two large centres in which the industry is concentrated are Bombay and Ahmedabad
In Rashtriya Mill Mazdoor Sangh Bombay vs Millowners Association Bombay1 a scheme was framed by the Industrial Court exercising power under the Bombay Industrial Relations Act 11 of 1947 in which the quantum of gratuity was related to the basic wages alone
In paragraph 27 at p 583 the Tribunal rejected the argument advanced by counsel for the workmen that since benefits like provident fund retrenchment compensation State Insurance Scheme are granted in terms of monthly wages gratuity should also be related to consolidated wages
They observed that in a large majority of awards of the Labour Appellate Tribunals and Industrial
Tribunals gratuity had been awarded in terms of basic wages and that The basic wages reflect the differentials between the workers more than the total wages as dearness allowance to all operatives is paid at a flat rate varying with the cost of living index
The gratuity schemes for the supervisory and technical staff as well as for clerks are also in terms of basic wages
 They accordingly related gratuity with the average basic wage earned by the workman during the twelve months preceding death disability retirement resignation or termination of service
The scheme in the Bombay region was adopted in the dispute between the Textile Labour Association and the Ahmedabad Mill Owners Association
The award is reported in the Textile Labour Association Ahmedabad vs Ahmedabad Millowners  Association2
The question whether gratuity should be fixed on the basis of consolidated wages was apparently not mooted but it was accepted on both the sides that gratuity should be related to basic wages
An appeal against that decision in the Ahmedabad Millowners  Association case2 was brought before this Court in Bharatkhand Textile Manufacturing Co Ltd s case3 but no objection was raised to the award relating gratuity to basic wages
In the report of the Central Wage Board for the Cotton Textile Industry 1959 in paragraph 110 gratuity was directed to be given on the basis
of wages plus the increases given under paragraph 106 but excluding the dearness allowance
The only departure from the prevailing pattern to which our attention is invited was made by the Labour Appellate Tribunal in regard to the textile units in the Coimbatore Region Rajalakshmi Mills Ltd vs Their Workmen4
There was apparently 1 1967 Industrial Court Reporter 561
2 1958 I LLJ 349
3  4 1957 II LLJ 426
331 no discussion on the question about the basis on which gratuity should be awarded
The Labour Appellate Tribunal observed 2 In all the appeals there is a contest by the mills on the subject of gratuity and it is contended that the gratuity as awarded is too high
Both sides had much to say on the subject of the gratuity scheme as given by the adjudicator
During the course of the hearing we indicated to the parties the lines on which the gratuity scheme could be suitably altered to meet their respective points of view
We accordingly give the following scheme in substitution of the scheme at Para 85 of the award All persons with more than five years and less than ten years  continuous service to their credit on termination of their service by the company except in cases of dismissals for misconduct involving moral turpitude shall be paid gratuity at the rate of ten days  average rate of pay inclusive of dearness allowance for each completed year of service        But this award was modified later by the Industrial Tribunal in Coimbatore District Mill Workers  Union and Others vs Rajalakshmi Mills Co Ltd1 The earlier award made in 1957 was sought to be reviewed before the Industrial Tribunal
The Tribunal observed that it would be the duty of the Tribunal to modify a gratuity scheme based upon some agreement or settlement if the terms of that agreement are found to be onerous and oppressive
The Tribunal stated that the original scheme was not applicable to all the units and taking into consideration the statutory provident fund scheme and the fact that recently basic wages and dearness allowance have leaped up there was No justification for including the dearness allowance in any new scheme that might be framed for the new Mills and that it would be most undesirable to have two sets of gratuity schemes in the same region with varying rates
In the view of the Tribunal there should be a uniform scheme for all the Mills old and new and on that ground also the retention of the dearness allowance under the old scheme must be refused
Counsel for the workmen relied upon an award made by the Industrial Tribunal in the Chemical Unit belonging to the DCM which is published in DCM Chemical Works vs Its Workmen2
In that case gratuity was related to consolidated wages
The unit though belonging to the DCM is entirely independent of the tex 1 1964 I LLJ 638
2 1962 1LLJ 388
332 tile unit
The Company was treating that unit as separate from the textile unit and distinct for the purpose of recruitment of labour sales and conditions of service for the workmen employed therein
The Chemical Unit had separate muster rolls for its employees and transfers from one unit to
the other even where such transfers were possible considering the utterly different kinds of businesses carried on in the different units usually took place with the consent of the employee concerned
In upholding the gratuity scheme which was based on the consolidated wages this Court observed As to the burden of the scheme we do not think that looking at it from a practical point of view and taking into account the fact that there are about 800 workmen in all in the concern the burden per year would be very high considering that the number of retirements is between three to four per centum of the total strength The gratuity scheme was in a chemical unit and not in a textile unit
The judgment of this Court merely affirmed the award of the Tribunal and sets out no reasons why gratuity should be related to consolidated wages
We do not regard the affirmance by this Court of the award of the Industrial Tribunal as an effective or persuasive precedent justifying a variation from the normal pattern of gratuity schemes in operation in the textile industry all over the country
It is clear that in the gratuity schemes operative at present to which our attention has been invited in force in the textile industry payment of gratuity is related not to consolidated wages but to basic wages
It is true that under the scheme which is in operation in the DCM and SBM payment which is related to the length of service may in some cases exceed the maximum awardable under a scheme of gratuity benefit related to basic wages
That cannot be a ground for making a vital departure from the prevailing pattern in the other textile units in the country
But it may be necessary to protect the interest of the members governed by the original scheme
Determination of gratuity is not based on any definite rules
In each case it must depend upon the prosperity of the concern needs of the workmen and the prevailing economic conditions examined in the light of the auxiliary benefits which the workmen may get on determination of employment
If all over the country in the textile centres payment of gratuity is related to the basic wages and not on consolidated wages any innovation in the Delhi region is likely to give rise to serious industrial disputes in other centres all over the country
The award if confirmed would not ensure industrial peace it is likely to foment serious unrest in 333 other centres
If maintenance of industrial peace is a governing principle of industrial adjudication it would be wise to maintain a reasonable degree of uniformity in the diverse units all over the country and not to make a fundamental departure from the prevailing pattern
We are therefore of the view that the Tribunal s award granting gratuity on the basis of consolidated wage cannot be upheld
Tiffs modification will not however affect the existing benefits which are available under the schemes framed by the DCM and SBM insofar as those two units are
concerned
Mr Ramamurthi for the workmen also
contended that in the matter of relating gratuity to wages consolidated or basic the principle of region cum industry should be applied and an overall view of similar and uniform conditions in the industry  in different centres should not be adopted
It was also urged that the basic wage is very low and the class of wage to which gratuity was related played a very important part in the determination of gratuity
The basic wage is however low in all the centres and if it does not play an important part in other centres we see no reason why it should play only in the Delhi region a decisive part so as to make a vital departure from the scheme in operation in the other centres in the country
We are strongly impressed by the circumstance that acceptance of the award of the Tribunal in the present case is likely to create conditions of great instability all over the country in the textile industry
In that view we decline to uphold the order of the Tribunal fixing gratuity on the basis of consolidated wages inclusive of dearness allowance
We may refer to the contentions advanced by counsel for the workmen in the two appeals filed by them
It was urged that the Tribunal was in error in denying to the workmen gratuity when employment is determined on the ground of misconduct
It was urged that it is now a rule settled by decisions of this Court that the employer is bound to pay gratuity notwithstanding termination of employment on the ground of misconduct
It may be noticed that in the Rashtriya Mill Mazdoor Sangh s case1 and in the Ahmedabad Millowners  Association case2 provision was expressly made denying gratuity to the workmen dismissed for misconduct
But in later cases a less rigid approach was adopted
In Garment Cleaning Works case3 tiffs Court observed On principle if gratuity is earned by an employee for long and meritorious service it is difficult to understand why
the benefit thus earned by long and meritorious service should not be available to the employee even though at the end of such service he may have been found guilty of misconduct which entails his dismissal
Gratuity is not paid to the employee gratui 1 1957 Industrial Court Reporter 561
2 1958 I LLJ 349
3 334 tously or merely as a matter of boon
It is paid to him for the service rendered by him to the employer and when it is once earned it is difficult to understand why it should necessarily be denied to him whatever may be the nature of misconduct of his dismissal
 In later judgments also the Courts upheld the view that the denial of the right to gratuity is not justified even if employment is determined for misconduct
In Motipur Zamindari P Ltd vs Their Workmen  1  this Court opined that the workmen should not be wholly deprived of the benefit earned by long and meritorious service even though at the end of such service he may be found guilty of misconduct entailing his dismissal and therefore the condition in a gratuity scheme that no gratuity should be payable to a workman dismissed for misconduct involving moral turpitude should be held unjustified
The Court therefore modified the condition and directed that while paying gratuity to a workman who was dismissed for misconduct only such amount should be deducted from the gratuity due to him in respect of which the employer may have suffered loss by the misconduct of the employee
A similar view was expressed in Remington Rand of India Ltd s case 2
In Calcutta Insurance Company Ltd s case3 however protest was raised against acceptance of this rule without qualification
Mitter J observed at p 9 that it was difficult to concur in principle with the opinion expressed in the Garment Cleaning Works case4
Mitter J observed We are inclined to think that it gratuity is paid to a workman to ensure good conduct throughout the period he serves the employer Long and meritorious service must mean long and unbroken period of service meritorious to the end
As the period of service must be unbroken so must the continuity of meritorious service be a condition for entitling the workman to gratuity
If a workman commits such misconduct as causes financial loss to his employer the employer would under the general law have a right of action against the employee for the loss caused and making a provision for withholding payment of gratuity where such loss was caused to the employer does not seem to aid to the harmonious employment of labourers or workmen
Further the misconduct may be such as to undermine the discipline in the workers a case in which it would be extremely difficult to assess the financial loss to the employer
 1 1965 II LLJ 139
2 1968 I LLJ 542
3 1967 II LLJ 1
4 335 Misconduct spreads over a wide and hazy spectrum of industrial activity the most seriously subversive conduct rendering an employee wholly unfit for employment to mere technical default are covered thereby
The parliament enacted the  which by section 15 has authorised the appropriate Government to make rules to carry out the purposes of the Act and in respect of additional matters to be included in the Schedule
The Central Government has framed certain model standing rules by notification dated December 18 1946 called The Industrial Employment Standing Orders Central Rules 1946 
In Sch
I Model Standing Orders cl 14 provides 1       2 A workman may be suspended for a period not exceeding four days at a time or dismissed without notice or any compensation in lieu of notice if he is found to be guilty of misconduct
3 The following acts and omissions shall be treated as misconduct  a wilful insubordination or disobedience whether alone or in combination with others to any lawful and reasonable order of a superior b theft fraud or dishonesty in connection with the employer s business or property c wilful damage to or loss of employer s goods or property d taking or giving bribes
or any illegal gratification e habitual absence without leave or absence without leave for more than 10 days f habitual late attendance g habitual breach of any law applicable to the establishment h riotous or disorderly behaviour during working hours at the establishment or any act subversive of discipline i habitual negligence or neglect of work j frequent repetition of any act or omission for which a fine may be imposed to a maximum of 2 per cent of the wages in a month k striking work or inciting
others to strike work in contravention of the provisions of any law or rule having the force of law  336 A bare perusal of the Schedule shows that the expression misconduct covers a large area of human conduct
On the one hand are the habitual late attendance habitual negligence and neglect of work on the other hand are riotous or disorderly behaviour during working hours at the establishment or any act subversive of discipline wilful insubordination or disobedience
Misconduct falling under several of these latter heads of misconduct may involve no direct loss or damage to the employer but would render the functioning of the establishment impossible or extremely hazardous
For instance assault on the Manager of an establishment may not directly involve the employer in any loss or damage which could be equated in terms of money but it would render the working of the establishment impossible
One may also envisage several acts of misconduct not directly involving the establishment in any loss but which are destructive of discipline and cannot be tolerated
In none of the cases cited any detailed examination of what type of misconduct would of would not involve to the employer loss capable of being compensated in terms of money was made it was broadly stated in the eases which have come before this Court that notwithstanding dismissal for misconduct a workman will be entitled to gratuity after deducting the loss occasioned to the employer
If the cases cited do not enunciate any broad principle we think that in the application of those cases as precedents a distinction should be made between technical misconduct which leaves no trail of indiscipline misconduct resulting in damage to the employer s property which may be compensated by forfeiture of gratuity or part thereof and serious misconduct which though not directly causing damage such as acts of violence against the management or other employees or riotous or disorderly behaviour in or near the place of employment is conducive to grave indiscipline
The first should involve no forfeiture the second may involve forfeiture of an amount equal to the loss directly suffered by the employer in consequence of the misconduct and the third may entail forfeiture of gratuity due to  the workmen
The precedents of this Court eg Wenger  Co vs Its Workmen1 Remington Rand of India Ltd case2 and Motipur Zamindari P Ltd s casea do not compel us to hold that no misconduct however grave may be visited with forfeiture of gratuity
In our judgment the rule set out by this Court in Wenger  Co s case1 and Motipur Zamindari P Ltd s case3 applies only to those cases where there has been by actions wilful or negligent any loss occasioned to the property of the employer and the misconduct does not involve acts of violence against the management or other employees or riotous or dis 1 1963 II LLJ 403
2 1968 I LLJ 542 SC
3 1965 II LLJ 139 SC
337 orderly behaviour in or near the place of employment
In these exceptional cases the third class of cases the employer may exercise the right to forfeit gratuity to hold otherwise would be to put a premium upon conduct destructive of maintenance of discipline
It was urged on behalf of the workmen that the minimum period of 15 years fixed for voluntary retirement is too long and it should be reduced to 10 years
In Hume Pipe Co Ltd vs Their Workmen1 and Hydra Engineers Private Ltd vs The Workmen2 the minimum period for qualifying for gratuity on voluntary retirement was fixed at 15 years
In other cases a shorter period of 10 years was adopted Garment Cleaning Worksa British Paints India Ltd4 Calcutta Insurance Co Ltd5 and Wengel  Companyx
Counsel for the employers have accepted that qualifying length of service for voluntary retirement should be reduced to 10 years
Counsel for the employers have also accepted that having regard to all the circumstances notwithstanding the direction given by the Tribunal and the schemes prevailing in the other parts of the country in the textile industry the maximum gratuity should not exceed 20 months  basic wages and not 15 months  as directed by the Tribunal
Further counsel for the DCM and SBM have agreed that in case of termination of employment on voluntary retirement one full months basic wages for each completed year of service not exceeding 20 months  wages should be granted to workmen
Counsel for the BCM has agreed that gratuity at the rate of 21 days  wages for each completed year of service in case of voluntary retirement or resignation after 10 years  service may be awarded as gratuity to the workmen
Counsel for the ATM has shown no disinclination to fall in line with this suggestion
Counsel for the ATM has also not objected to appropriate adjustments in view of the concessions made by the management of the DCM SBM and BCM
It was urged by counsel for the workmen that in providing that gratuity shall be paid to Badli workmen for only those years in which a workman has worked for 240 days the Tribunal has committed an error
It was urged that a Badli workman has to register himself with the management of the textile unit and is required every day to attend the factory premises for ascertaining whether work would be provided to him and since a Badli workman has to remain available throughout the year when the factory is open a condition requiring that the Badli workman has worked for not less than 240 days to qualify for gratuity is unjust
We 1 1959 II LLJ 830
2 CA No 1934 of 1967 decided on April 30 1968
3 4 1966 I LLJ 407 SC 5 1967 II LLJ 1 SC
6 1963 II LLJ 403 SC 338 are unable to agree with that contention
If gratuity is to be paid for service rendered it is
difficult to appreciate the grounds on which it can be said that because for maintaining his name on the record of the Badli workmen a workman is required to attend the Mills he may be deemed to have rendered service and would on that account be entitled also to claim gratuity
The direction is unexceptionable and the contention must be rejected
It was also urged by Mr Ramamurthi that the expression average of the basic wage in the definition of wages in cl 4 of the Schemes is likely to create complications in the implementation of the Schemes
He urged that if the wages earned by a workman during a month are divided by the total number of working days the expression wages will have an artificial meaning and especially where the workman is old or disabled or incapacitated from rendering service gratuity payable to him will be substantially reduced
We do not think that there is any cause for such apprehension
The expression average of the basic wage can only mean the wage earned by a workman during a month divided by the number of days for which he has worked and multiplied by 26 in order to arrive at the monthly wage for the computation of gratuity payable
Counsel for the employers agree to this interpretation
It was then urged that whereas the reference to
the Industrial Tribunal was made by the Delhi Administration sometime in March 1958 the award is given effect to from January 1 1964 and for a period of nearly six years the workmen have been deprived of gratuity when the delay in the disposal of the proceedings was not due to
any fault or delaying tactics on the part of the workmen
The reference was made in the first week of March 1958
The Textile Mazdoor Union then applied to be impleaded on September 15 1958 the DCM and SBM moved the High Court of Punjab at Delhi and obtained an order for stay of proceedings in writ petition filed against the order of the Tribunal impleading the Textile Mazdoor Union
That writ petition was dismissed in February 1961 and the proceedings were resumed on December 12 1962
Thereafter preliminary issues were decided and on December 3 1963 an interim award relating to other disputes was made
It must however be noticed that there were four claims and the claim relating to gratuity was taken in hand by the Tribunal after disposal of the other claims
Neither party was dilatory in the prosecution of any claim before the Tribunal
It has also to be noticed that in the DCM and SBM there was in fact a gratuity scheme already in operation
The liability of the ATM to pay gratuity arises after that unit acquired sufficient financial stability and it is not suggested that the unit had acquired financial stability before January 1 1964
The issue remains a live issue only in respect of the BCM
It is true that the gratuity 339 scheme of the DCM and SBM was related only to the length of service and did not take into account the varying rates of wages received by the workmen
But the question if at all would be one of making minor adjustments in the liability of the two units to pay gratuity in the event of gratuity being payable under this award at a higher rate than the gratuity awardable under the scheme already in operation in the two units
If in respect of the ATM which had no scheme gratuity for all practical purposes becomes operative from January 1 1964 we do not see any reason why in respect of the BCM any different rule should be provided for
Again the Tribunal has fixed January 1 1964 as the date for the commencement of the schemes
Giving the schemes effect before January 1 1964 may rake up cases
in which the workmen have left the establishments many years ago
It would not be conducive to industrial peace to allow such questions to be raised after this long delay
The question is not capable of solution on the application of any principle and must be decided on the consideration of expediency
We do not think that any ground is made out for altering the award of the Industrial Tribunal in this behalf
It was then urged that in any event the workmen of the DCM and SBM should not be deprived of the right to gratuity under the scheme of the two units if gratuity at a higher rate is payable to them under the voluntary scheme
This contention must be accepted
We direct that in respect of all workmen of the DCM and SBM who were employed before January 1 1964 and continued to remain employed till that date gratuity at the higher of the two rates applicable to each workman when he becomes entitled to gratuity either computed under the Employees Benefit Fund Trust scheme of the DCM and SBM or under the terms of this award shall be paid
Workmen employed after January 1 1964 will be entitled to the benefit of this award alone
Industrial disputes have given rise to considerable strife holding up development of industry and the economic welfare of the nation
Awards have been made by the Tribunals often on considerations adhoc and based on no principle and Courts have upheld or modified those awards without enunciation of any definite or generally accepted principle
In the present case we have been largely guided b37 the consideration of securing a reasonable degree of uniformity in the fixation of gratuity in the textile industry for in our view a departure made from the prevailing pattern in one region is likely to give rise to claims all over the country for modification of the gratuity schemes in operation and have been accepted as fixing the basis
of gratuity schemes
If having regard to the deteriorating value of the rupee it is thought necessary that more generous benefits should be available to the 340 workmen by way of gratuity the remedy lies not before the adjudicators or the Courts but before the legislative branch of the State
In respect of the bonus provident fund retrenchment compensation State Insurance Schemes as well as medical benefits legislation has been introduced bringing a reasonable degree of certainty in the laws governing the various benefits available to the workmen and we are of the view that even in respect of gratuity a reasonably uniform scheme may be evolved by the Legislatures which could prevent resort to the adjudicators in respect of this complicated matter of dispute between the employers and the employees
It may not be difficult to evolve a scheme which would meet the legitimate claims
of both the employers and the employees and which might while eliminating cause for friction  simultaneously conduce to greater certainty in the administration of the law governing industrial disputes and secure benefits to the employers as well as the employees and conduce to the prosperity of the industry as well as of the workmen
We propose to summarise the effect of our judgment 1 A unit wise approach in framing the gratuity scheme for the four units was appropriate and on the terms of the reference the plea of the employers to fix the age of superannuation was beyond the scope of reference
The financial condition of the DCM SBM and BCM justifies imposition of gratuity schemes as from January 1 1964
Even the ATM which is the weakest of the four units is financially stable from the date on which the award becomes operative 2 The settlement between the workmen and the ATM did not operate to bar the jurisdiction of the Tribunal to make the scheme of gratuity payable to the workmen of the ATM 3 That the Tribunal was in error in relating gratuity awardable to the workmen to the consolidated wage 4 That the minimum period for 
qualifying for voluntary retirement should be reduced to 10 years and one months basic wage in the case of DCM and SBM and 21 days  basic wage in the case of BCM and ATM for each completed year of service should be paid but not exceeding 20 months wages in the aggregate
This direction is made with the consent of the Advocates of the employers 341 5 That workmen dismissed or discharged from service for misconduct will not be entitled to gratuity if guilty of conduct involving acts of violence against the management or other employees or riotous or disorderly behaviour in or near the place of employment 6 No modification need be made with regard to Badli workmen 7 The award needs no modification with regard to the date of operation of the award and 8 The workmen of the DCM and SBM who commenced service and continued to serve till January 1 1964 and thereafter will be entitled to elect at the time when gratuity becomes due to claim gratuity either on the scheme in force under the Employees Benefit Fund Trust of the employers or under this award
We have made some incidental changes to streamline the scheme
On the view we have taken of the schemes Annexure A relating to the DCM and SB M of the award will be modified in the following respects In clause 1 a instead of 12 days  wages the expression 20 days  wages will be substituted In clause 1 b for the expression 15 days  wages the expression 1 month s wages will be substituted In proviso ii to clause 1 for the expression 15 months  wages the expression 20 months  wages will be substituted In clause 2 for the expression
15 days  wages the expression 1 months wages will be substituted and for the expression  15 years service  10 years service will be substituted In the proviso to clause 2 for the expression 15 months  wages the expression 20 months  wages will be substituted In clause 3 in the proviso for the expression 15 months  wages the expression 20 months  wages will be substituted Clause 3 will be followed by an Explanation Explanation
The expression misconduct means acts involving violence against the management or other employees or riotous or disorderly behaviour in or near the place of employment
342 Where the workman is guilty of conduct which involves the management in financial loss the loss occasioned may be deducted from the gratuity payable In clause 4 the words plus the dearness allowance will be omitted
The remaining clauses will stand unaffected except that for the words within six months from the date of publication of this Award  the words within six months from the date of this judgment will be substituted
Annexure B  relating to the BCM and ATM will be modified in the following respects In clause 1 a for the expression one fourth month s wages the expression 15 days  wages will be substituted In clause 1 b for the expression one third month s wages the expression 21 days  wages will be substituted In the proviso for the expression 12 months  wages the expression 20 months  wages will be substituted In clause 2 for the words 15 years  service the expression 10 years  service will be substituted In clause 3 in the proviso for the expression 12 months  wages the expression 20 months  wages will be substituted and it will be followed by the Explanation of misconduct as in Annexure A 
In clause 4 the words plus the dearness allowance will be omitted
There will be no order as to costs in these appeals
VPS Award modified accordingly


Summary:
In the Delhi region there are four textile units
namely the DCM the SBM the BCM and the ATM The DCM and the SBM are under one management
Since 1940 they had also a common retirement benefit scheme with a scale of gratuity
The  workmen in all the units were receiving basic wages plus dearness allowance
On March 4 1958 an industrial dispute between the four units and their workmen was referred to the Industrial Tribunal and one of the matters in dispute related to gratuity
The Tribunal in its award framed two schemes relating to the payment of gratuity one relating to DCM and SBM and the other to BCM and ATM They were made operative from January 1 1964
Both employers and employees appealed to this Court
On the questions 1  Whether in view of a settlement between the management of ATM and its workmen it was open to the Tribunal to ignore the settlement and impose the scheme on the management 2 Whether in view of the unstable financial condition of ATM the burden of payment of gratuity on ATM was excessive 3 Whether a uniform scheme applicable to the entire industry on the region cum industry basis should have been adopted instead of schemes applicable to individual units 4 Whether in determining the quantum of gratuity basic wage alone should be taken into account and not the consolidated wage including dearness allowance 5 Whether in deciding this question an overall view of similar and uniform conditions in the industry in different centers in the country could he taken into consideration 6 Whether it was not necessary for the Tribunal to fix the age of superannuation when introducing a gratuity scheme 7 Whether gratuity should have been awarded even in cases of dismissal for misconduct 8 Whether provision should have been made for payment of gratuity to badli workmen irrespective of the number of days for which they worked in a year 9 Whether the schemes should have been made operative from the date of reference and 10 What is the scope of the expression average of the basic wage 
HELD 1 The settlement between the workmen and management of ATM did not bar the jurisdiction of the Tribunal to make the Scheme of gratuity applicable to ATM 340 Under the settlement all that was agreed to was that an award should be made and if it he found that ATM acquired financial stability then it would be liable to pay the gratuity to its workmen
It was not agreed that the proceedings before the Tribunal should be dropped and that it 308 was only after ATM became financially stable that a fresh claim should be made by the workmen
320 D F 2 The trading accounts of ATM showed that since 1959 60 the Mills had achieved some stability and that by 1961 62 all previous losses were wiped out
Therefore though it was a much weaker unit than the others it was financially stable from the date on which the scheme became operative
321 A C 3 A unit wise approach in framing the gratuity scheme for the four units was appropriate in the present case
323 B C 340 D E No inflexible rule has been laid down by this Court that gratuity schemes should he framed only on the region cure industry principle
In the present case if a common scheme was framed for the entire industry in Delhi for all four units in view of the financial condition of ATM the benefits under such a scheme would be not only low but would be lower than the existing benefits available to workmen in the DCM and SBM Units
321 C D H 322 E F H Garment Cleaning Works vs Its Workmen 1962 1 SCR 711 and Burhanpur Tapti Mills Ltd vs Burhanpur Tapti Mills Mazdoor Sangh  followed
Bharatkhand Textile Mfg Co vs Textile Labour Association   explained
4 The Tribunal was in error in relating the gratuity awardable to the workmen to the consolidated wage instead of the basic wage
340 G a In determining the scope of an industrial reference words used either in the claim or in the order of reference should not necessarily be given the meaning they have under the Industrial Disputes Act
Therefore merely because the expression wages in the Act includes dearness allowance the Tribunal could not base the gratuity scheme on consolidated wages
325 D F b An industrial tribunal cannot adjudicate on disputes not referred but when called upon to adjudicate  whether a certain scheme on the terms indicated in the reference should be framed such basic guidance does not limit its jurisdiction
The Tribunal in this case was in error in thinking that in determining the rate of gratuity it was limited to the number of days of service in the order of reference as the applicable multiple
On that assumption since the gratuity would be too low if only basic wage was chosen it was not justified in choosing consolidated wage
The proper procedure would have been to choose only the basic wage and fix upon a larger number of days of service as the appropriate multiple
327 E H c The decisions of this Court in May and Baker India Ltd vs their Workmen 1961 II LLJ 94 SC British India Corporation vs Its Workmen 1965 II LLJ 556 SC British Paints India Ltd vs Its Workmen  Hindustan Antibiotics Ltd vs Their Workmen and Remington Rand of India vs The Workmen are conflicting and no principle can be extracted as to whether basic wage or consolidated wage should be considered for purposes of gratuity
Ordinarily in those circumstances this Court would not have interfered with the conclusion of the Tribunal choosing consolidated wage but the Tribunal had failed 309 to take into account the prevailing pattern in the textile industry all over the country
It is country wide industry and in that industry gratuity has never been granted on the basis of consolidated wages
329 C F 330 A d The primary object of industrial adjudication is to adjust the relations between employers and employees with the object of promoting industrial peace
If the basic wage alone is taken for purposes of gratuity it would produce in the present case a scheme which deprives the workmen of the DCM and SBM of benefits which had been granted to them under the voluntary scheme introduced by the management of those two units and disturb industrial peace therein
But on that account the Tribunal was not justified in introducing a fundamental change in the concept of gratuity granted by numerous schemes in the textile industry all over the country
The appropriate remedy is to frame a scheme consistent with the normal pattern prevailing in the industry and introduces reservations protecting benefits already acquired
326 C F e In the report of the Central Wage Board for the cotton textile industry also gratuity was directed to be given on the basis of wages excluding dearness allowance
330 G f In D CM Chemical Works vs Its Workmen this Court affirmed the award relating gratuity to consolidated wages
Though the unit also belonged to DCM it is a unit entirely independent of the textile unit
So it cannot be regarded as an effective or persuasive precedent justifying variation from the normal pattern of gratuity schemes in operation in the textile industry all over the country
331 H 332 A B D E 5 If all over the country in textile centres payment of gratuity
is related to the basic wage and not to the consolidated wage any innovation Delhi region alone is likely to give rise to serious industrial disputes in other centres in the country
If maintenance of industrial peace is a governing principle of industrial adjudication it would be wise to maintain a reasonable degree of uniformity in the diverse units all over the country and not to make a fundamental departure from the prevailing patternthe basic wage is low in all other centres and if it does not play an important part there is no reason why it should play only in the Delhi region a decisive part so as to make a vital departure from schemes in operation in other centres in the country
The acceptance of the award the Tribunal in the present case is likely to create conditions of great instability in other parts of the country in the textile industry
Therefore the Tribunal s award granting gratuity on the basis of consolidated wage could not be upheld
332 G H 333 A E 6 It is not necessary for a gratuity scheme to be effective that here should be fixation of the age of superannuation
323 C D Burhanpur Tapti Mills Case  referred Further on the terms of the reference the plea of the employers to fix the age of superanuation was beyond the scope of the reference nor was such fixation incidental to the framing of the scheme
323 H 324 c 7 The object of providing a gratuity scheme is to provide a retiring benefit to workmen who have rendered long and unblemished service to the employer and thereby contributed to the prosperity of the employer
It is therefore not correct to say that no misconduct however grave may not be visited with forfeiture of gratuity
Misconduct could be a 310 technical misconduct which leaves no trail of indiscipline b misconduct resulting in damage to the employers  property which may be compensated by forfeiture of gratuity or part thereof and c serious misconduct such as acts of violence against the management or other employees or riotous or disorderly behaviour in or near the place of employment which though not directly causing damage is conducive to grave indiscipline
The first should involve no forfeiture the second may involve forfeiture of an amount equal to the loss directly suffered by the employer in consequence of the misconduct and the third will entail forfeiture of gratuity due to the workmen
324 F G 336 D F 341 A B Garment Cleaning Works vs Its Workmen  1961 I LLJ 513 Wenger  Ca
vs Its Workmen 1963 II LLJ 403 SC Motipur Zamindari P Ltd vs Their Workmen 1965 II LLJ
139 SC Calcutta Insurance Co vs Their Workmen 1967 II LLJ 1 SC and Remington Rand of India vs The Workmen 1968 I LLJ 542 SC
referred to
8 The award does not require to be modified with regard to badli workmen
If gratuity is to be paid for service rendered then there are no grounds for holding that a badli workman must be deemed to have rendered service giving rise W a claim of gratuity merely because for maintaining his name on the record of the badli workmen he is required to attend the mills
338 A B 9 The award needs no modification with regard to the date of commencement of the schemes
The liability of ATM to pay gratuity arose after it acquired sufficient financial stability and the unit acquired financial stability only from January 1 1964
If in respect of the ATM which had no scheme
gratuity becomes operative from January 1 1964 there is no reason why respect of BCM any different rule should be provided for
As regards DCM and SBM there was already a more advantageous gratuity scheme in operation and the workmen in those two units were not prejudiced by directing the scheme applicable to them to commence from January 1 1964
If effect was given to the schemes before January 1 19 64 it may rake up cases in which workmen have left the establishment many years ago and it would not be conducive to industrial peace to allow such questions to be raised after a long delay
In the absence of any principle the matter must be decided on considerations of expediency
338 G H 339 A D 10 The expression average of the basic wage  means wage earned by a workman during a month divided by the number of days for which he had worked and multiplied by 26 in order to arrive at the monthly wage for the computation of gratuity payable
333 C D Appropriate directions modifying the schemes were accordingly given