BCH ELECTRIC LIMITED versus PRADEEP MEHRA
[2020] 10 S.C.R. 1, Supreme Court of India, 2020
Outcome: Appeal(s) allowed (Granted)
Segment: Ratio
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BCH ELECTRIC LIMITED
v.
PRADEEP MEHRA
(Civil Appeal No. 2379 of 2020)
APRIL 29, 2020
[UDAY UMESH LALIT AND SANJIV KHANNA, JJ.]
Payment of Gratuity Act, 1972: ss.4(3), 4(5) – Respondent
appointed as Chief Operating Officer resigned after putting 12 years
of service – His last drawn monthly wage was Rs.24.50 lacs – Claim
made by him for gratuity of Rs.1.83 crores – Appellant-employer
held that respondent was entitled to maximum of Rs.10 lacs as gratuity
– The Authorities under the Act and the High Court accepted the
claim preferred by the respondent – Challenge against – Held: s.4(3)
stipulates that the amount of gratuity payable to an employee shall
not exceed certain limit and thus puts a cap on the amount payable
towards gratuity – However, s.4(5) states that nothing in this Section
shall affect the right of an employee to receive better terms of gratuity
under “any award or agreement or contract with the employer” –
Thus, as against what is made applicable by the Act, if better terms
are available under any arrangement with the employer, s.4(5)
stipulates that nothing in s.4 shall affect the right of any employee
to receive such better terms – This means when two choices are
available, one under provisions of the Act and one under such
arrangement with the employer and if the latter offers better terms,
the employee cannot be denied right to receive those higher benefits
– In the instant case, Rule 6(b) of the Rules framed under the Scheme
of the
appellant-Company stipulates that notwithstanding the
Scheme of the Company,  if any member is covered by the Act, the
amount of gratuity shall be calculated in accordance with the
provisions of the Act – Similarly, the Appendix to the Scheme
prescribes the rates at which the gratuity is to be paid – Thus, the
intent of the Trust Deed and the Scheme is clear that the governing
principles as regards the amount to be calculated and the rates to
be applied have to be in accordance with the provisions of the Act,
if an employee is covered by the provisions of the Act – If the amount
is to be so calculated according to the provisions of the Act, in case
of employees covered by the provisions of the Act, there is no other
[2020] 10 S.C.R. 1
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alternative which is offered by the Company or which is part of any
award or agreement or contract entered into between the employer
and employees – Thus, no reliance could be placed on s.4(5) of the
Act to submit that the employees are entitled to some greater
advantage than what is available under the Act – Appellant was
right in going by the provisions of the Act and by the ceiling
prescribed u/s.4(3) of the Act – The Authorities under the Act and
the High Court erred in accepting the claim preferred by the
respondent – Any mistakes on its part in making some extra payments
to some of the other employees would not create a right in favour of
respondent in the face of the stipulations in the Trust Deed and the
Scheme.
Allowing the appeal, the Court
HELD: 1.1 As on the day, when the respondent resigned
from his service, that is on 01.06.2012, the relevant ceiling in
Sub-Section (3) of Section 4 was at the level of “ten lakh rupees”
and for an employee to be covered by the definition obtaining in
Section 2(e) of the Act, there was no wage-bracket or ceiling. In
terms of Section 4(1) of the Act, gratuity shall be payable to an
employee in the eventualities referred to therein if he had
rendered continuous service for not less than five years.
Explanation to Section 4(2) inter alia states that the gratuity shall
be payable at the rate of 15 days’ wages for every completed year
of service or part thereof in excess of six
months. Explanation to
Section 4(2) lays down how the gratuity is to be calculated, while
Section 4(3) stipulates that the amount of gratuity payable to an
employee shall not exceed certain limit and thus puts a cap on
the amount payable towards gratuity.  Section 4(5) then states
that nothing in said Section shall affect the right of an employee
to receive better terms of gratuity under “any award or agreement
or contract with the employer”. [Paras 16, 17][23-A-D]
1.2 For Section 4(5) of the Act, to get attracted, there must
be better terms of gratuity available and extendable to an
employee “under any award or agreement or contract with the
employer” as against what has been provided for under and in
terms of the Act. In other words, as against what is made
applicable by the Act, if better terms are available under any such
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arrangement with the employer, Section 4(5) stipulates that
nothing in Section 4 shall affect the right of any employee to
receive such better terms. Thus, when two choices are available,
one under provisions of the Act and one under such arrangement
with the employer and if the latter offers better terms, the
employee cannot be denied right to receive those higher benefits.
[Para 18][23-D-F]
2.1 The Trust Deed was executed “for the purpose of
providing gratuities to the employees of the company under the
Payment of Gratuity Act”. Clause 15 of the Trust Deed casts an
obligation on the trustees to provide payment of gratuity upon
termination of service or upon death or retirement of service of
the Member “as provided in the Rules of Scheme” Rule 6(b) of
the Rules clearly stipulates that notwithstanding the Scheme of
the Company, if any member is covered by the Act, the amount of
gratuity shall be calculated in accordance with the provisions of
the Act. Similar thought is expressed in the Appendix to the
Scheme which prescribes the rates at which the gratuity is to be
paid. The Scheme thus divides the employees in two categories.
First, the employees to whom the Act applies and with respect to
whom the amount of gratuity shall be “calculated in accordance
with the provisions of the Act and as per the rates prescribed by
the Act”; the Second category of employees are those to whom
the Act does not apply. According to said Rule 6(b) and Appendix,
the
calculation of amount of gratuity at the rates prescribed in
the manner laid down in the Appendix, is to be done only in the
case of employees in the Second category. [Para 20][23-H;
24-A-D]
2.2 The intent of the Trust Deed and the Scheme is thus
clear that the governing principles as regards the amount to be
calculated and the rates to be applied have to be in accordance
with the provisions of the Act, if an employee is covered by the
provisions of the Act. If the amount is to be so calculated according
to the provisions of the Act, in case of employees covered by the
provisions of the Act, there is no other alternative which is offered
by the Company or which is part of any award or agreement or
contract entered into between the employer and employees. Thus,
BCH ELECTRIC LIMITED  v. PRADEEP MEHRA
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no reliance could be placed on Section 4(5) of the Act to submit
that the employees are entitled to some greater advantage than
what is available under the Act. For Section 4(5) to apply there
must be two alternatives, one in terms of the Act and one as per
the award or agreement or contract with the employer. The
Scheme on which heavy reliance was placed to submit that it
afforded and made available better terms of gratuity itself
emphasizes that in case of the employees who are covered under
the Act, the amount payable as gratuity shall be in terms of the
provisions of the Act. The Scheme does not therefore offer to
the employees covered by the Act any other alternative apart
from what is payable under the Act. [Para 21][24-E-H]
2.3 Rather than making available an alternative to the model
and modalities of calculation of amount of gratuity, as placed on
statute book by the provisions of the Act, the Trust Deed and the
Scheme contemplates two kinds of employees. One, who are
covered under the provisions of the Act and the other, who are
not so covered. The historical background and the changes that
the provisions of Section 2(e) and Section 4 have undergone show
that not all employees were initially sought to be covered under
the Act. Those, who were in wage-brackets greater than what
was stipulated in Section 2(e) till it was finally amended to do
away with the wage-bracket, were not covered by the Act. The
Trust
Deed and the Scheme sought to devise an apparatus and
make provision for those who were otherwise not covered by
the Act and for this reason contemplated two kinds of employees.
The Trust Deed and the Scheme were executed and formulated
in the year 1979 when the wage-bracket was a definite parameter
for an employee to be covered under the Act.  The intent of the
Trust Deed and the Scheme has to be understood in that
perspective. The idea was not to afford to the employees who
are covered by the provisions of the Act, a package better than
what was made available by the Act, but it was to extend similar
benefit to those who would not be covered by the Act. [Para 22]
[25-A-D]
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3. The High Court failed to consider the effect and impact
of Rule 6(b) of the scheme. The Single Judge did refer to said
Rule 6(b) but found that the Rule was so broadly drafted that it
could not be construed to contemplate the ceiling limit under
Section 4(3) of the Act.   The true import of Rule 6(b) which gets
further emphasized by stipulation in the Appendix to the Scheme
was lost sight of by the authorities under the Act and by the High
Court. If an employee is covered by the provisions of the Act,
according to said Rule 6(b), the amount of gratuity has to be
calculated in accordance with the provisions of the Act. The
Appendix to the Scheme reiterates the same principle. Thus, in
case of such an employee the gratuity has to be calculated in
accordance with the provisions of the Act and while so calculating,
not only the basic principle available in Section 4(2) as to how the
gratuity is to be calculated must be applied but also the ceiling
which is part of Section 4(3) must also apply.  The rates and the
modalities of calculations of gratuity as available under the Scheme
of the Rules are to apply only to those employees who are not
covered by the provisions of the Act. [Para 23][25-G-H; 26-A-C]
4. The Authorities under the Act and the High Court erred
in accepting the claim preferred by the respondent. The appellant
was right in going by the provisions of the Act in the present
matter and by the ceiling prescribed under Section 4(3) of the
Act. Any
mistakes on its part in making some extra payments to
some of the other employees would not create a right in favour of
others in the face of the stipulations in the Trust Deed and the
Scheme.[Para 24][26-D-E]
Beed District Central Cooperative Bank Ltd. v. State of
Maharashtra and Others (2006) 8 SCC 514 : [2006] 6
Suppl. SCR 895; Union Bank of India and Others v.
C.G. Ajay Babu and Another (2018) 9 SCC 529 : [2018]
9 SCR 995 – referred to.
Case Law Reference
[2006] 6 Suppl. SCR 895
referred to
Para 10.2
[2018] 9 SCR 995
referred to
Para 13
BCH ELECTRIC LIMITED  v. PRADEEP MEHRA
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CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2379
of 2020.
From the Judgment and Order dated 12.02.2019 of the High Court
of Delhi at New Delhi in Letters Patent Appeal No. 97/2019.
C. U. Singh, Sr. Adv., Gulshan Chawla, Ashish Kumar, Advs. for
the Appellant.
J.P. Cama, Sr. Adv., Shekhar Kumar, Saurav Prakash, Mayan
Pd., Ms. Suruchi Kr., Utsav Jain, Advs. for the Respondent.
The Judgment of the Court was delivered by
UDAY UMESH LALIT, J.
1. Leave granted.
2. This appeal challenges the judgment and order dated 12.2.2019
passed by the High Court1 dismissing Letters Patent Appeal No.97 of
2019 and thereby affirming the decision of the Single Judge of the High
Court in Writ Petition No.10318 of 2017.
3. By Trust Deed executed on 19.03.1979 between the appellant,
a company registered under the Indian Companies Act, 1956 on one
hand and three trustees on the other, an “Approved Gratuity Fund” was
constituted “for the purpose of providing Gratuities to the employees of
the Company under the Payment of Gratuity Act, 1972 (hereinafter
referred to as ‘the Act’) and the Gratuity Scheme of the Company”.
Clauses 4, 11 and 15(a) of the Trust Deed are as under:-
“4. RULES:
The Fund shall be governed by the Rules and any reference to
the Rules in these presents shall mean the Rules for the time
being in force which shall be binding on the Members, their
Beneficiaries and on the Company. A copy of the current Rules is
annexed to and
the same shall be deemed to form part of these
presents.
11. MEMBERS TO HAVE NO LEGAL RIGHT Except as
provided in these presents and in the Rules, no Member or his
Beneficiary shall have any legal claim, right or interest in the Fund.
1 The High Court of Delhi at New Delhi
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Provided always that the Trustees shall administer the Fund for
the benefit of the Members and their Beneficiaries in accordance
with the provisions of these presents and the Rules.
15. PAYMENT OF GRATUITY:
(a) On behalf of the Company, the Trustees shall provide for the
payment of gratuity on termination of service, on death or
retirement of the Member or otherwise as provided in the Rules
of Scheme.”
3.1 In the Rules appended to the Scheme the expressions
“Company”, “Employee” and “Gratuity” are defined as under:-
“2. (a) “Company” shall mean Bhartia Cutler Hammer Limited
and its successors or assigns or any Company or body corporate
which may by purchase or amalgamation acquire or take over in
whole or in part, the undertaking of the company and with the
previous approval of the Commissioner undertakes to perform
the obligations of the Company under the Trust Deed or the Rules.
… … …
(b) “Employee” shall mean a person in the permanent, whole-
time and bona fide employment of the Company, including a whole-
time Director, but shall not include (i) any member of the staff
who is or may be on probation or who is temporary or part-time
(ii) any apprentice or (iii) a personal or domestic servant.
...……
(m) “Gratuity” shall mean Gratuity payable under these Rules.”
3.2 Rules 4(b) and 6 of the Rules are as under:-
“4. (a) … … …
(b) The Company shall pay to the Trustees in respect of
each member an ordinary annual contribution in each year based
on an actuarial
valuation by a Qualified Actuary subject to Rule
103 of the Income Tax Rules 1962 or any statutory enactment or
any modification thereof from time to time.
6. A member on ceasing to be a member of the Fund shall be
entitled to be paid by the Trustees, the amount due as computed in
the manner laid down hereunder in this Scheme: -
BCH ELECTRIC LIMITED  v. PRADEEP MEHRA
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(a) The amount of Gratuity payable to the beneficiary shall
be calculated in the manner provided in the Company’s Gratuity
Scheme.
(b) Notwithstanding the provision herein contained, if any
ember is covered by the provisions of the Payment of Gratuity
Act 1972, the amount of gratuity shall be calculated in accordance
with the provisions of that Act.”
3.3 The Appendix to the Scheme prescribes the rates at which
gratuity will be payable as under:-
“Gratuity will be payable to the Employees to whom the Payment
of Gratuity Act, 1972 applies as per the rates prescribed by the
said Act.
Gratuity will be payable to the other employee of the company at
the following rates:-
(a) On the death or permanent total physical disablement, while
in the service of the Company, or retirement at the age of 55
years or if retained by the Company after 55 years, then at the
time of separation from the Company:
15 days basic salary for each completed year of service subject
to maximum of 20 months basis pay, payable to the employees
or payable to his heirs, executors or nominee in case of death
of the employee.
(b) On termination of Service:
i. Beyond five years upto 8 years of continuous service at
the rate of 5 (five) days basic pay for every completed
year of service.
ii. Beyond 8 years upto 10 years of continuous service at
the rate of 10 days (ten) basic salary for every completed
year of service.
iii. Beyond 10 years upto 15 years of
continuous service at
the rate of 12 (twelve) days basic salary for every completed
year of service.
iv. Beyond 15 years of continuous service at the rate of 15
(fifteen) days basic salary for every completed year of
service subject to maximum of 20 months basic salary.
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(c) On resignation or voluntary retirement:
After completion of 5 years of continuous service or more
at the rate of 15 days basic salary per year of completed
service, subject to maximum of 20 months basic pay provided
that the management is satisfied that such resignation or
voluntary retirement is in the interest of the administration.
The rate of basic salary for payment of Gratuity shall be
the last pay drawn by the employee.”
4. On 12.06.2000, the respondent was appointed as Chief
Operating Officer of the appellant-company with basic salary of
Rs.1,05,000/- per month on terms and conditions indicated therein. One
of the terms was:-
“11. Gratuity
You will be entitled to gratuity on your becoming eligible as per
laws.”
At the same time, one of the conditions was:-
“9. Your services will be governed by the Central services
Rules of the Company.”
5. The emoluments payable to the respondent were raised from
time to time. After having put in about 12 years’ of service, the respondent
resigned with effect from 01.06.2012 when his last drawn wages were
Rs.24,50,000/-per month. A sum of Rs.36,70,015/- was thereafter paid
to the respondent towards retiral dues. The respondent raised a claim
that he was entitled to gratuity amount of Rs.1,83,75000/-. By
communication dated 09.08.2012, a bank draft in the sum of
Rs.10,19,452/- was forwarded by the appellant to the respondent being
the sum of Rs.10 Lakhs towards gratuity along with interest accrued
thereon from
the date of cessation of service of the respondent.
6. The respondent issued a legal notice on 19.10.2012, which was
followed by filing of a Claim Petition2 under Section 7 of the Act. It was
submitted that the emolument sheets issued to the respondent from time
to time indicated that a sum of 4.81% of his basic salary had been
adjusted towards gratuity; in the year 2007 the respondent was promoted
to the post of Chief Executive Officer and his emoluments had almost
2 Claim Petition No. ALC-HOTB/36(66)/2012/ALC-1/36(203)/16-NK
BCH ELECTRIC LIMITED  v. PRADEEP MEHRA
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doubled; that his emolument sheet dated 03.06.2011 acknowledged that
the amount set apart for contribution towards gratuity for that year alone
was Rs.11,54,400/-, and that various other employees had actually
received gratuities without any limit. It was thus prayed that the
respondent was entitled to the balance sum of Rs.1,73,75,000/-
(Rs.1,83,75,000/- less Rs.10,00,000/- which was received) towards
gratuity along with interest at the rate of 18% per annum.
7. In its reply to the claim petition, the appellant relied upon Clause
15 of the Trust Deed and Rule 6(b) of the Rules. It was submitted:-
“(iv) From bare reading of the above Clause 15 read with Rule
6(b), it is apparent that the employees of the respondent No.1
Company, if covered by the provisions of the Gratuity Act were
entitled for gratuity in accordance with the provisions of the
Gratuity Act.
(v) As per the aforementioned prescribed scheme, the gratuity
was always determined as per the method prescribed under the
Gratuity Act and when the gratuity for any employee exceeded
the maximum limit (as prescribed from time to time), under the
Gratuity Act, it was capped at the prevailing upper limit at the
relevant time i.e. the gratuity amount was reduced so as to stay
within the upper caps prescribed by the Gratuity Act.”
While responding to the submission that some of the employees
had received gratuities in excess of Rs.10 lakhs, it was submitted that
the
respondent as Chief Executive officer was responsible for making
such excessive payments to said employees and that the respondent
reserved its rights to take appropriate remedy in that behalf. It was
further stated:-
“In any event, the emoluments sheet never mentioned that the
provisions on the letter of appointment, Trust Deed and provisions
of the Gratuity Act are not to be followed. The petitioner was
entitled to payment of gratuity as per the Gratuity Act in accordance
with the terms and conditions of its letter of appointment and the
Trust Deed as referred above.”
8. By Order dated 31.07.2017, the Claim Petition was allowed by
the Controlling Authority under the Act. After referring to some of the
decisions of the High Court, it was observed:-
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“The proposition of law that emerges from the aforesaid judgment
is that the employees are entitled to receive higher gratuity amount
under contract, settlement, award, rules, regulations and schemes
of the employer in view of section 4(5) of the Act and an employee
can approach the controlling authority to claim determination of
his gratuity under the more beneficial settlement, award, rules or
scheme of the employer.”
8.1. While dealing with the Scheme, it was observed:-
“The fact that the scheme of the respondents only talk about the
method of calculation of gratuity and does not specially put any
cap on the amount of gratuity payable under the scheme, the fact
that the said scheme was never amended by the respondents to
incorporate any ceiling on gratuity, the fact that it does not prescribe
for any minimum qualifying service and the fact that the several
employees have also been paid gratuity higher than the prescribed
limit and that the management has continued to earmark 4.81%
of the basic of the applicant and other co-employees, towards the
gratuity and showing the same as cost to company in emoluments
sheet despite the fact the that the said allocation had already
crossed the gratuity limits provided under the Act, leaves no room
for doubt that the respondents had intended to make more liberal
and beneficial gratuity scheme by abandoning the cap on gratuity
and minimum qualifying service which otherwise has been provided
under the Act.”
8.2 In the
premises, it was held:-
“The applicant is therefore entitled to gratuity under the scheme
without any cap. The gratuity is to be calculated as per the formula
of the Act as the applicant is admittedly covered by the Act, as
provided in the scheme of the management, but the gratuity has
to be paid without any ceiling.”
8.3 The computation as regards the amount payable towards
gratuity was as under:-
“The last drawn salary of the applicant is therefore taken as
Rs.24,50,000/-. The gratuity payable under the scheme is therefore
determined as under:-
24,50,000 X 15 X 13/26 = 1,83,75,000/-
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Since there is no cap on the gratuity under the scheme of the
employer, same is more beneficial to the applicant and he is entitled
to receive full gratuity amount of Rs.1,83,75,000/- under the said
scheme.”
9. The appellant being aggrieved, filed appeal before the Appellate
Authority under the Act challenging the aforesaid order dated 31.07.2017
passed by the Controlling Authority and applied for waiver of the
requirement of pre-deposit of the amount directed to be paid to the
respondent. Submitting that said application for waiver was not being
considered by the Appellate Authority, Writ Petition (Civil) No.10319 of
2017 was preferred in the High Court by the appellant. The Writ Petition
was disposed of by the High Court on 22.11.2017 directing the appellant
to submit appropriate bank guarantee in the sum representing the amount
of gratuity along with interest till the date of filing of the appeal. After
compliance, the appeal was taken up for hearing. By order dated
23.03.2018 the appeal3 was dismissed by the Appellate Authority under
the Act with following observations:-
“The Gratuity Fund so created by the appellant to regulate the
gratuity of the employees is necessarily a term of the service
contract between the employer and the employees as per
requirement under Section 4(5) of the Act.
The CA has rightly held that the amount of gratuity under the
scheme that does not provide any ceiling is very well covered
under the Section 4(5) of the Act”
10. The appellant filed Writ Petition No.3385 of 2018 in the High
Court challenging the Orders passed by the Authorities under the Act.
By its order dated 13.04.2018 the High Court stayed the operation of the
orders challenged upon the appellant furnishing appropriate bank
guarantee. After exchange of pleadings, the Writ petition was taken up
for final disposal. The submission advanced on behalf of the appellant
was noted as under:-
“As per clause 15 of this Trust Deed, the petitioner’s employees
are entitled to be paid gratuity out of the aforesaid Fund on the
termination of their service, on death or retirement or otherwise
as provided in the “Rules of the scheme”. The Rules of the scheme
and the Appendix thereto provide for two modes of computing an
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employee’s gratuity. For employees covered under the PG Act,
gratuity is to be calculated in accordance with the provisions of
the Act itself, whereas for the other employees it is to be calculated
as per the relevant clauses in the Appendix. He, however, submits
that the rules for computing the gratuity of other employees are
now redundant in the light of the Payment of Gratuity (Amendment)
Act, 1994, which extended the applicability of the PG Act to all
the employees engaged in a company. Resultantly, all the
petitioner’s employees, including the respondent are now covered
under the PG Act and, as per the express provisions of the
petitioner’s gratuity scheme, their gratuity has to be calculated as
per the statutorily prescribed rate and ceiling limit under Sections
4(2) and 4(3) respectively.”
On the other hand the submission of the respondent on the point
was noted as under:-
“the respondent’s claim for gratuity in excess of the ceiling limit
prescribed under Section 4(3), is not in conflict with the provisions
of the PG Act. In fact, contrary to what has been contended by
the petitioner, Section 4(5) categorically protects the respondent’s
right to receive gratuity under better terms than those prescribed
under the said Act.”
10.1. While considering these submissions, it was observed:-
“24. In my considered opinion, there is nothing in the Trust Deed
dated 19.03.1979 or the Rules thereunder that curbs the
respondent’s entitlement to gratuity to the
ceiling limit prescribed
under Section 4(3). The relevant Rule 6(b) of petitioner’s gratuity
scheme only stipulates that the amount of gratuity payable to an
employee shall be calculated in accordance with the provisions of
the PG Act. The “provisions of the PG Act” is a broad phrase
that not only contemplates the rate statutorily prescribed under
Section 4(2) and the ceiling limit under Section 4(3), but also the
exception carved out under Section 4(5) for employees who have
better terms of gratuity under an award, or agreement/contract
with the petitioner. Therefore, in the absence of a specific clause
that caps the maximum amount of gratuity payable to the
respondent, a broad stipulation in Rule 6(b) that gratuity will be
calculated as per the provisions of the PG Act, cannot be construed
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to mean that the ceiling limit under Section 4(3) is applicable to
the respondent. To my mind, such an interpretation would amount
to selectively applying only Section 4(3) of the Act, by ignoring
the mandate of Section 4(5), when Rule 6(b) in itself contemplates
the provisions of the PG Act as a whole.
25. In other words, Rule 6(b) merely reiterates what is apparent
on a plain reading of Section 4 of the PG Act, i.e., the respondent
is entitled to a maximum of Rs.10,00,000/- as gratuity, unless there
is an award, or contract/agreement whereunder he can claim
gratuity in excess of the aforesaid ceiling limit. The said Rule is so
broadly drafted that read by itself, it cannot be construed to
contemplate only the ceiling limit under Section 4(3) of the PG
Act, but also indicates the provisions of Section 4(5). Similarly,
the Appendix to the aforesaid Rules only stipulates that the
respondent’s gratuity shall be calculated as per the rates prescribed
under the PG Act, i.e., under Section 4(2). However, it does not in
any way stipulate that he is subject to the statutory limit prescribed
under Section 4(3).
26. Now coming to clause 11 of the respondent’s terms of
appointment which, as per the contentions of the learned counsel
for the petitioner, clearly lays down that the respondent is only
entitled to a maximum gratuity of Rs.10,00,000/- as prescribed
under the PG Act. I am of the view that there can be two possible
interpretations of Clause 11. In the first sense, the phrase “as per
laws” can be read to qualify the word “eligible” so that Clause 11
suggests that the respondent shall be entitled to receive gratuity
on his meeting the eligibility criteria laid down by the laws in force.
For obvious reasons, this particular interpretation of the clause
cannot in any way be read to impose a limit on the amount of
gratuity payable to the respondent. In the second sense, which is
the interpretation that has been relied upon by the learned counsel
for the petitioner, Clause 11 can be read to suggest that the
respondent shall be entitled to gratuity “as per laws” on his
becoming eligible. In this sense also, the phrase “as per laws” is
at best a broad stipulation that takes within its sweep not only the
provisions of Sections 4(2) and 4(3), but also of Section 4(5). Like
Rule 6(b) under the Trust Deed dated 19.03.1979, the interpretation
of clause 11 relied upon by Mr. Sethi has such a broad implication
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that it cannot be read so selectively to apply the ceiling limit under
Section 4(3) to the amount of gratuity that can be claimed by the
respondent. Thus, looked at from every possible angle, there is
nothing in the documents relied upon by the learned counsel for
the petitioner that curbs the gratuity payable to the respondent to
the statutory ceiling limit under Section 4(3).”
10.2. As regards, the decision of this Court in Beed District Central
Cooperative Bank Ltd. v. State of Maharashtra and others4, it was
observed:-
“31.Similarly, the decision in Beed District Central Coop. Bank
Ltd. v. State of Maharashtra and Ors.4, is also not applicable to
the present case. In that case, the appellant/employer’s internal
gratuity scheme provided a better rate for computing the gratu9ity
of the respondent/workman, but the ceiling limit thereunder was
lower than that prescribed by the PG Act. When the respondent/
workman sought to avail the benefit of the appellant/employer’s
internal gratuity scheme as also the ceiling limit under the PG Act,
the Supreme Court held that the respondent/workman must either
avail the benefit of his contract with the appellant/employee in its
entirety or the statute. He cannot avail the better terms of his
contract with appellant/employer and at the same time keep his
options open in respect of a part of the statute that suits him.”
The Single Judge of the High Court, thus by order dated 06.02.2019
dismissed the aforesaid Writ
Petition as well as connected petitions.
11. The matter was carried further by the appellant by filing Letters
Patent Appeal No. 97 of 2019 before the Division Bench of the High
Court which by its judgment and order dated 12.02.2019 affirmed the
view taken by the Single Judge and dismissed the appeal. The Division
Bench considered the decision of this Court in Beed District Central
Cooperative Bank Ltd.4 and found as under:-
“18. … …There, the employees had opted for the Scheme of the
Management which was less advantageous than the PGA. Their
plea that they should be given gratuity as per the then upper limit
as per the PGA was negative. It was held by the Supreme Court
that an employee while reserving his right to opt for the beneficient
4 (2006) 8 SCC 514
BCH ELECTRIC LIMITED  v. PRADEEP MEHRA
[UDAY UMESH LALIT, J.]
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provisions of the statute or the agreement had to opt “for either of
them and not the best of the terms of the statute as well as those
of the contract.” In the present case, the Appellant’s Gratuity
Scheme, which was relied upon by the Respondent, itself provided
for the rates as per Section 4(2) of the PGA but without the upper
limit under Section 4(3) PGA. By opting for the Appellant’s
Scheme, the Respondent did not lose the benefit of Section 4(2)
PGA.
…
…
…
20. The Court finds that not all elements of the PGA have been
adopted in the Gratuity Scheme of the Appellant. While the ‘rate’
stipulated under Section 4(2) PGA has been adopted, the ceiling
limit under Section 4(3) of the PGA has not. As noted both by the
CA and the learned Single Judge, the Appellant itself calculated
the gratuity not just in the case of the Respondent but in the cases
of ten other employees. The Chairman and Managing Director
(CMD) of the Appellant would decide the emoluments of the
Respondent and issue EES which invariably contained an entry
towards gratuity, which amount was computed at the rate of 4.81%
of the Respondent’s annual basic salary. The EEs were issued
under the signature of the CMD before being handed over to the
Respondent in original, thereby becoming a part of the contract
between the Appellant and the Respondent. In 2007-08 the gratuity
amount was Rs.6,34,920/- which was nearly twice the then ceiling
limit of Rs.3.5
lakhs under the PGA. In 2011-12 it was
Rs.11,54,400/- which was higher than the ceiling limit of Rs.10
lakhs.”
12. In this appeal challenging the view taken by the High Court,
we heard Mr. C.U. Singh, learned Senior Advocate for the appellant
and Mr. J.P. Cama, learned Senior Advocate for the respondent.
13. In the submission of Mr. C.U. Singh, learned Senior Advocate,
the respondent was clearly covered by the Payment of Gratuity Act,
1972 and subject to the ceiling or limit of Rs.10 lacs as provided under
Section 4(3).
He submitted that while an employee would be entitled to receive
better terms of gratuity under Section 4(5) of the Act, such better terms
could be claimed only under specific circumstances as set out in Section
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4(5); that at no stage any claim was raised regarding existence of any
award, agreement or contract nor was there any pleading about the
existence of any award, agreement or contract. It was further submitted
that in terms of law laid down by this Court in Beed District Central
Cooperative Bank Ltd.4 and Union Bank of India and others vs.
C.G. Ajay Babu and Another5 either the statutory provisions or the
contractual scheme can be followed and not a combination of both the
elements.
14. In response, it was submitted by Mr. J.P. Cama, learned Senior
Advocate for the respondent that since Section 4(5) of the Act has been
given overriding effect over other provisions of Section 4, as held by this
Court in Union Bank of India6, it would override the provisions of
Section 3 of the Act and as such, all that the respondent needed to show
was that the appellant had a scheme for its employees (contract) and
that it did not prescribe any ceiling and that such a scheme would be
protected by Section 4(5) of the Act. As regards the applicability of Rule
6(b) of the Scheme, it was submitted:-
“It is true that Rule 6(b) contains a non-obstante clause. However,
Section 4(5) also contains a non-obstante clause. Section 4(5)
being a statutory provision, will prevail. In any case Rule 6(b)
must also be reconciled with Rule 6(a) which makes “the
Company’s Gratuity Scheme” applicable to every member,
otherwise Rule 6(a) would become otiose. Thus, if “the Company’s
Gratuity
Scheme” is more beneficial than the Act, Rule 6(a) will
get its play. There is nothing in Rule 6(b) that excludes a more
beneficial scheme under Section 4(5) and / or Rule 6(a).”
15. Before we deal with the rival submissions, the effect of various
amendments making changes in Section 2(e), Section 4(2) and Section
4(3) of the Act are required to be considered. The Act was enacted in
the year 1972 “to provide for a scheme for the payment of gratuity to
employees engaged in factories, mines, oilfields, plantations, ports, railway
companies, shop or other establishments and for matters connected there
with and incidental thereto”. The expression “employee” as originally
defined in Section 2(e) was as under:-
5 (2018) 9 SCC 529
6 (2018) 9 SCC 529
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“(e) “employee” means any person (other than an apprentice)
employed on wages, not exceeding one thousand rupees per
mensem, in any establishment, factory, mine, oilfield, plantation,
port, railway company or shop, to do any skilled, semi-skilled, or
unskilled, manual, supervisory, technical or clerical work, whether
the terms of such employment are express or implied, but does
not include any such person who is employed in a managerial or
administrative capacity, or who holds a civil post under the Central
Government or a State Government, or who is subject to the Air
Force Act, 1950, the Army Act, 1950, or the Navy Act, 1957.
Explanation. - In the case of an employee, who, having been
employed for a period of not less than five years on wages not
exceeding one thousand rupees per mensem, is employed at any
time thereafter on wages exceeding one thousand rupees per
mensem, gratuity, in respect of the period during which such
employee was employed on wages not exceeding one thousand
rupees per mensem, shall be determined on the basis of the wages
received by him during that period;”
The original text of Sub-Sections (2) and (3) of Section 4 of the
Act was as under:-
“Payment of gratuity:
4. (1) ………
   (2) For every completed year of service or part thereof in excess
of six months the employer shall pay gratuity to an employee
at the rate of fifteen days’ wages based on the rate of wages
last drawn by the employee
concerned.
Provided that in the case of a piece rated employee, daily
wages shall be computed on the average of the total wages
received by him for a period of three months immediately
preceding the termination of his employment, and, for this
purpose, the wages paid for any overtime work shall not be
taken into account:
Provided further that in the case of an employee employed
in a seasonal establishment, the employer shall pay the
gratuity at the rate of seven days’ wages for each season.
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(3)
The amount of gratuity payable to an employee shall not
exceed twenty months’ wages.
(4)
to (6) … … …”
15.1 By Act 25 of 1984 the expression “one thousand six
hundred rupees” was substituted in place of expression “one thousand
rupees” in Section 2(e). Further, in explanation to Section 2(e), similar
expression “one thousand six hundred rupees” was substituted at
two places for “one thousand rupees”. Similarly, expression “and
whether or not such person is employed in a managerial or
administrative capacity” was inserted in Section 2(e) before the clause
beginning with “but does not include any person who holds the post
under the Central Government …”.
15.2 By Act 22 of 1987 further amendments were effected and
expression “two thousand five hundred rupees per mensem or such
higher amount the Central Government may, having regard to the
general level of wages, by notification specify” was substituted in
place of “one thousand six hundred rupees per mensem” in the main
part of Section 2(e) defining “employee”. Similarly, for the expression
“one thousand six hundred rupees per mensem”, the expression “that
amount” was substituted at two places in the Explanation to Section
2(e). Said amendment Act also inserted following explanation after
Second Proviso to Sub-Section (2) of Section 4.
“Explanation.- In the case of a monthly rated employee, the
fifteen days’ wages shall be calculated by dividing the monthly
rate of wages last drawn by him by twenty-six
and multiplying the
quotient by fifteen.”
Sub-Section (3) of Section 4 was also amended and instead of
“twenty months’ wages” the expression “fifty thousand rupees” was
substituted.
15.3 In exercise of power conferred upon it, the Central
Government by Notification No. S.O. 863 (E), dated 26.11.1992 raised
the “higher amount” of wages referred to in Section 2(e) of the Act to
“three thousand and five hundred rupees”.
15.4 Act 35 of 1994 made further amendments and expression
“not exceeding two thousand five hundred per mensem, or such
higher amount as the Central Government may, having regard to
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the general level of wages, by notification specify” occurring in
Section 2(e) was omitted. The explanation to Section 2(e) was also
omitted. Consequently, the definition of “employee” now ceased to have
any limit on wages and all employees, who otherwise answer the
description in the definition, regardless of wages that they would receive,
now stand covered.
This Amendment Act also substituted expression “one lakh” in
place of the earlier expression “fifty thousand” occurring in Section
4(3) of the Act.
15.5 By Act 47 of 2009, for Clause (e) of Section 2 following
Clause was substituted:-
“(e) “employee” means any person (other than an apprentice)
who is employed for wages, whether the terms of such employment
are express or implied, in any kind of work, manual or otherwise,
in or in connection with the work of a factory, mine, oilfield,
plantation, port, railway company, shop or other establishment to
which this Act applies, but does not include any such person who
holds a post under the Central Government or a State Government
and is governed by any other Act or by any rules providing for
payment of gratuity;”
15.6 The ceiling limit of “one lakh rupees” as stipulated in Section
4(3) of the Act was successively raised by Act 11 of 1998 and by Act 15
of 2010 to “rupees three lakhs and fifty thousand rupees” and “ten
lakh rupees” respectively.
15.7 By Act 12 of 2018 the expression “ten lakh rupees” now
stands
substituted by the expression “such amount as may be notified
by the Central Government from time to time”.
15.8 The provisions of Section 2(e) and Section 4 of the Act, as
they stand this date, are as under:-
Section 2(e)
“employee” means any person (other than an apprentice who is
employed for wages, whether the terms of such employment are
express or implied, in any kind of work, manual or otherwise, in or
in connection with the work of a factory, mine, oilfield, plantation,
port, railway company, shop or other establishment to which this
Act applies, but does not include any such person who holds a
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post under the Central Government or a State Government and is
governed by any other Act or by any rules providing for payment
of gratuity;”
Section 4
Payment of gratuity.- (1) Gratuity shall be payable to an employee
on the termination of his employment after he has rendered
continuous service for not less than five years, -
(a) on his superannuation, or
(b) on his retirement or resignation, or
(c) on his death or disablement due to accident or disease:
Provided that the completion of continuous service of five years
shall not be necessary where the termination of the employment
of any employee is due to death or disablement:
Provided further that in the case of death of the employee, gratuity
payable to him shall be paid to his nominee or, if no nomination
has been made, to his heirs, and where any such nominees or
heirs is a minor, the share of such minor, shall be deposited with
the controlling authority who shall invest the same for the benefit
of such minor in such bank or other financial institution, as may be
prescribed, until such minor attains majority.
Explanation. - For the purposes of this section, disablement means
such disablement as incapacitates an employee for the work which
he, was capable of performing before the accident or disease
resulting in such disablement.
(2) For every completed year of service or part thereof in excess
of six months, the employer shall pay gratuity to an employee at
the rate of fifteen days wages based on the
rate of wages last
drawn by the employee concerned:
Provided that in the case of a piece-rated employee, daily wages
shall be computed on the average of the total wages received by
him for a period of three months immediately preceding the
termination of his employment, and, for this purpose, the wages
paid for any overtime work shall not be taken into account.:
Provided further that in the case of [an employee who is employed
in a seasonal establishment and who is riot so employed throughout
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the year], the employer shall pay the gratuity at the rate of seven
days wages for each season.
Explanation: In the case of a monthly rated employee, the fifteen
days wages shall be calculated by dividing the monthly rate of
wages last drawn by him by twenty-six and multiplying the quotient
by fifteen.
(3) The amount of gratuity payable to an employee shall not exceed
three lakhs and fifty thousand] rupees.
(4) For the purpose of computing the gratuity payable to an
employee who is employed, after his disablement, on reduced
wages, his wages for the period preceding his disablement shall
be taken to be the wages received by him during that period, and
his wages for the period subsequent to his disablement shall be
taken to be the wages as so reduced.
(5) Nothing in this section shall affect the right of an employee to
receive better terms of gratuity under any award or agreement or
contract with the employer.
(6) Notwithstanding anything contained in sub-section
(1), -
(a)
the gratuity of an employee, whose services have been
terminated for any act, wilful omission or negligence
causing any damage or loss to, or destruction of, property
belonging to the employer, shall be forfeited to the extent
of the damage or loss so caused.
(b)
the gratuity payable to an employee may be wholly or
partially forfeited] –
(i)
if the services of such employee have been
terminated for his riotous or disorderly conduct or
any other act
of violence on his part, or
(ii) if the services of such employee have been
terminated for any act which constitutes an offence
involving moral turpitude, provided that such offence
is committed by him in the course of his
employment”
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16. Thus, as on the day, when the respondent resigned from his
service, that is on 01.06.2012, the relevant ceiling in Sub-Section (3) of
Section 4 was at the level of “ten lakh rupees” and for an employee to
be covered by the definition obtaining in Section 2(e) of the Act, there
was no wage-bracket or ceiling.
17. In terms of Section 4(1) of the Act gratuity shall be payable to
an employee in the eventualities referred to therein if he had rendered
continuous service for not less than five years. Explanation to Section
4(2) inter alia states that the gratuity shall be payable at the rate of 15
days’ wages for every completed year of service or part thereof in excess
of six months. Explanation to Section 4(2) lays down how the gratuity is
to be calculated, while Section 4(3) stipulates that the amount of gratuity
payable to an employee shall not exceed certain limit and thus puts a cap
on the amount payable towards gratuity. Section 4(5) then states that
nothing in said Section shall affect the right of an employee to receive
better terms of gratuity under “any award or agreement or contract with
the employer”.
18. For Section 4(5) of the Act, to get attracted, there must be
better terms of gratuity available and extendable to an employee “under
any award or agreement or contract with the employer” as against what
has been provided for under and in terms of the Act. In other words, as
against what is made applicable by the Act, if better terms are
available
under any such arrangement with the employer, Section 4(5) stipulates
that nothing in Section 4 shall affect the right of any employee to receive
such better terms. Thus, when two choices are available, one under
provisions of the Act and one under such arrangement with the employer
and if the latter offers better terms, the employee cannot be denied right
to receive those higher benefits.
19. But the question still remains whether in the present case
there was such a choice available or not. According to Mr. C.U. Singh,
learned Senior Advocate, the case of the respondent would be clearly
covered by the provisions of the Act and not under the Scheme at all.
Similar submissions were advanced on behalf of the appellant before
the High Court, as noted by the Single Judge. However, the submissions
were rejected after placing reliance on Section 4(5) of the Act.
20. We must, therefore, see what exactly has been provided for
in the Trust Deed, Scheme and the Rules framed thereunder. The Trust
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Deed was executed “for the purpose of providing gratuities to the
employees of the company under the Payment of Gratuity Act”. Clause
15 of the Trust Deed casts an obligation on the trustees to provide
payment of gratuity upon termination of service or upon death or
retirement of service of the Member “as provided in the Rules of Scheme”
Rule 6(b) of the Rules clearly stipulates that notwithstanding the Scheme
of the Company, if any member is covered by the Act, the amount of
gratuity shall be calculated in accordance with the provisions of the Act.
Similar thought is expressed in the Appendix to the Scheme which
prescribes the rates at which the gratuity is to be paid.
The Scheme thus divides the employees in two categories. First,
the employees to whom the Act applies and with respect to whom the
amount of gratuity shall be “calculated in accordance with the provisions
of the Act and as per the rates prescribed by the Act”; the Second
category of employees are those to whom the Act does not apply.
According to said Rule 6(b) and Appendix, the calculation of amount of
gratuity at the rates prescribed in the manner laid down in the Appendix,
is to be done only in the case of employees in the Second category.
21. The intent of the Trust Deed and the Scheme is thus clear that
the governing principles as regards the amount to be calculated and the
rates to be applied have to be in accordance with the provisions of the
Act, if an employee is covered by the provisions of the Act. If the amount
is to be so calculated according to the provisions of the Act, in case of
employees covered by the provisions of the Act, there is no other
alternative which is offered by the Company or which is part of any
award or agreement or contract entered into between the employer and
employees. Thus, no reliance could be placed on Section 4(5) of the Act
to submit that the employees are entitled to some greater advantage
than what is available under the Act. As stated earlier, for Section 4(5)
to apply there must be two alternatives, one in terms of the Act and one
as per the award or agreement or contract with the employer. The
Scheme on which heavy reliance was placed to submit that it afforded
and made available better terms of gratuity itself emphasizes that in
case of the employees who are covered under the Act, the amount
payable as gratuity shall be in terms of the provisions of the Act. The
Scheme does not therefore offer to the employees covered by the Act
any other alternative apart from what is payable under the Act.
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22. Rather than making available an alternative to the model and
modalities of calculation of amount of gratuity, as placed on statute book
by the provisions of the Act, the Trust Deed and the Scheme contemplates
two kinds of employees. One, who are covered under the provisions of
the Act and the other, who are not so covered. The historical background
and the changes that the provisions of Section 2(e) and Section 4 have
undergone show that not all employees were initially sought to be covered
under the Act. Those, who were in wage-brackets greater than what
was stipulated in Section 2(e) till it was finally amended to do away with
the wage-bracket, were not covered by the Act. The Trust Deed and
the Scheme sought to devise an apparatus and make provision for those
who were otherwise not covered by the Act and for this reason
contemplated two kinds of employees. The Trust Deed and the Scheme
were executed and formulated in the year 1979 when the wage-bracket
was a definite parameter for an employee to be covered under the Act.
The intent of the Trust Deed and the Scheme has to be understood in
that perspective. The idea was not to afford to the employees who are
covered by the provisions of the Act, a package better than what was
made available by the Act, but it was to extend similar benefit to those
who would not be covered by the Act.
23. In Beed District Central Cooperative Bank Ltd.4, the gratuity
scheme provided by the employer had better rate for
computing gratuity
but the ceiling limit was lower; whereas the entitlement under the
provisions of the Act was at a lesser rate but the ceiling prescribed by
the Act was higher than what was provided by the employer. This Court
laid down that an employee must take complete package as offered by
the employer or that which is available under the Act and he could not
have synthesis or combination of some of the terms under the scheme
provided by the employer while retaining the other terms offered by the
Act. That was a situation where two alternatives were available to the
employee. The High Court in the present case, however, distinguished
said decision on the ground that the Scheme of the appellant “itself
provided for the rates as per Section 4(2) of the Act but without upper
limit under Section 4(3) of the Act”. In our view, the High Court failed to
consider the effect and impact of Rule 6(b) of the scheme. The Single
Judge did refer to said Rule 6(b) but found that the Rule was so broadly
drafted that it could not be construed to contemplate the ceiling limit
under Section 4(3) of the Act. In our view, the true import of Rule 6(b)
which gets further emphasized by stipulation in the Appendix to the
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Scheme was lost sight of by the authorities under the Act and by the
High Court. If an employee is covered by the provisions of the Act,
according to said Rule 6(b), the amount of gratuity has to be calculated
in accordance with the provisions of the Act. The Appendix to the Scheme
reiterates the same principle. Thus, in case of such an employee the
gratuity has to be calculated in accordance with the provisions of the
Act and while so calculating, not only the basic principle available in
Section 4(2) as to how the gratuity is to be calculated must be applied
but also the ceiling which is part of Section 4(3) must also apply. The
rates and the modalities of calculations of gratuity as available under the
Scheme of the Rules are to apply only to those employees who are not
covered by the provisions of the Act.
24. We have, therefore, no hesitation in holding that the Authorities
under the Act and the High Court erred in accepting the claim preferred
by the respondent. We hold that the appellant was right in going by the
provisions of the Act in the present matter and by the ceiling prescribed
under Section 4(3) of the Act. Any mistakes on its part in making some
extra payments to some of the other employees would not create a right
in favour of others in the face of the stipulations in the Trust Deed and
the Scheme.
25. We, therefore, allow this appeal, set aside the impugned
judgment and order and dismiss the Claim
Petition preferred by the
respondent. No costs.
Devika Gujral
Appeal allowed.