Case: Indian Link Chain Manufactures Limited & Another Vs. The Workmen & Others


Decision reasoning: 1[ds]In our view the financial position of the Company is such that the implementation of the scheme of gratuity is not likely to place an undue or unreasonable burden upon the Company23. There is also in our view no validity in the criticism that the scheme is difficult it not impossible to implement. It is therefore necessary to examine the scheme proposed by the Tribunal which is given below:1. On the death of an employee while in service of the Company or on his becoming physically or mentally incapacitated for further service in the Company, or on voluntary retirement or resignation of an employee after ten years of continuous service in the Company; he or his heirs, executors or nominees as the case may be, shall be paid as gratuity 21 days basic wages for each completed year of service, subject to a maximum of 390 days basic wages2. On termination of the services of an employee by the Company after five years but less than ten years of continuous service in the Company, the employee shall be paid as gratuity a sum equivalent to 13 days basic wages for each completed year of service in addition to retrenchment compensation that may be admissible to him under the Industrial Disputes Act, 19473. On termination of the services of an employee by the Company after ten years of continuous service in the Company; the employee shall be paid as gratuity a sum equivalent to 17 days basic wages for each completed year of service in addition to retrenchment compensation that may be admissible to him under the Industrial Disputes Act, 19474. An employee dismissed for misconduct will not be disentitled to gratuity, but in the case of an employee discharged or dismissed for misconduct causing financial loss to the Company, the loss must be deducted and the balance shall be paid to the employee towards gratuity5. The basic wages for the purpose of gratuity shall be the average of the basic wages of an employee exclusive of dearness allowance during the period of twelve months immediately preceding the event entitling him to gratuity24. With reference to clause 5 it is said that while the Tribunal has prescribed a consolidated wage without indicating what portion of that wage is the basic wage and what portion the dearness allowance, the payment of gratuity based on an average of the basic wages of an employee exclusive of dearness allowance is impossible to implement. In our view this contention is misconceived for the reason that while the Tribunal has awarded a consolidated wage without specifying what part of it is the basic wage and what part dearness allowance, that consolidated wage is the basic wage at a future date when the scheme of gratuity comes into force namely in 1968. The Tribunal when it formulated the scheme was fully aware of the fact that there would only be a consolidated wage from thence onwards till new wage scales are fixed when most likely basic wage and dearness allowance will be separately fixed, having regard to the price index existing at that time. We have not been referred to any decision of this Court laying down that a consolidated wage cannot be treated as a basic wage in any subsequent year to the year in which it has been prescribedOn the other hand there is warrant for the proposition that gratuity can be fixed on the basis of a consolidated wage. In (1967) 1 SCR 652   = (AIR 1967 SC 948  ), it was observed that gratuity is an additional form of relief for the relief for the workers to fall back upon and it would depend on the facts of each case as to whether the scheme as prepared by the Tribunal was fair and equitable25. The case of Management, Ghaziabad Engineering Co. (P.) Ltd. v. Its Workmen, (1970) 1 SCR 622   = (AIR 1970 SC 390  ), has been cited to show that the quantum of gratuity is only related to the basic wage and not to the consolidated wage but in our view this decision does not support that contention. In that case what this Court was considering was the gratuity applicable to the workmen who are being paid wages consisting of two componentsbasic wages and 50% of the basic wages as dearness allowance. It also appears that prior to 1960 the Company used to make a consolidated payment without specifying any basic salary or dearness allowance but since 1960 in every appointment letter it was expressly recited that the employees will get a consolidated salary consisting of 2/3 of the salary as basic wages and the balance as dearness allowance. In the context of theses facts the observations of Shah, J., as he then was, at page 627 upon which reliance is being placed on behalf of the Appellant in support of the proposition that gratuity must be related to basic wage should be understood. Shah, J. said:"There is no clear evidence on the record, and no precedents have been brought to our notice, to justify a departure from the normal rule that the quantum of gratuity is related not to the consolidated wage packet but to the basic wage."On the other hand the sentences that follow immediately do not justify any rigid principle relating gratuity to basic wage. It was observed:"A departure may be made from the normal rule, if there be some strong evidence or precedent in the industry, or conduct of the employer or other exceptional circumstances to justify that course. In the absence of such evidence, we are of the view that gratuity should be related to the basic wage and not to the consolidated wage packet."In that case as the basic wage and the dearness allowance was ascertainable because dearness allowance was prescribed as a percentage of the basic wage there was no warrant for relating gratuity to the consolidated wage26. In Delhi Cloth and General Mills Co. Ltd. v. Workmen, (1969) 2 SCR 307   = (AIR 1970 SC 919  ), Shah, J., after a review of the various cases in which the claim of gratuity in relation either to the consolidated wage or basic wage was considered admitted that it was not easy to extract any principle from these cases, because they were conflicting. It was also pointed out that in1 SCR 652   = (AIR 1967 SC 948  ), the Tribunal had awarded a scheme for gratuity related to consolidated wages and that order was confirmed. Even in Remington Rand of India Ltd. v. The Workmen, (1968) 1 Lab LJ 542 (SC), the claim for gratuity being based on consolidated wages though challenged was accepted. It appears to us that a more reasonable way of reconciliating this conflict is, that while no doubt the general rule is that gratuity must be related to the basic wage, in cases where the wages are not very high and a consolidated wage has been fixed taking into account the dearness allowance, the scheme of gratuity may be related to the consolidated wage, which will be the basic wage in subsequent years. As we pointed out earlier the consolidated wage will be the basic wage in subsequent years and at any future date having regard to the price index, the claim of the workmen either for a rise in the wage based on the cost of living index or for the grant of separate dearness allowance to neutralise that rise is bound to be considered and adjudicated27. Lastly the scheme is challenged as unfair and incongruous because those that retire are given larger benefits than those who are retrenched. But this criticism is equally unwarranted. In the first clause of the scheme a worker who voluntarily retires or resigns after 10 years of continuous service is to be paid as gratuity 21 days basic wages for each completed year of service subject to a maximum of 390 days basic wages, while under Clause 3, on termination of services of an employee after 10 years of continuous service he shall be paid as gratuity a sum equivalent to 17 days basic wages for each completed years. The difference between the gratuity payable to persons who resign or retire voluntarily and those whose services are terminated is that the latter will receive in addition to the gratuity the retrenchment compensation admissible to him under the Industrial Disputes Act, while in the case of the former he will not be entitled to it. The scheme itself in Clause 3 makes this specific distinction. We do not think that there is any justification for the several criticisms directed against this scheme. In our view the scheme is not only reasonable but fair having regard to the interests of the workmen and the financial capacity of the industry.