Case: The Bharatkhand Textile Mfg. Co. Ltd.&amp; Others Vs. The Textile Labour Association,Ahmedabad

In order to appreciate the points of law raised by the appellants in the present appeal we ought to state at the outset the material facts leading to the present dispute in which the impugned scheme for gratuity has been framed. On June 13, 1950, the respondent gave notice under Sec. 42 (2) of the Bombay Industrial Relations Act XI of 1947 hereinafter called the Act) intimating to the Mill Owners Association at Ahmedabad (hereinafter called the Association) that it desired a change as specified in the annexure to the communication. The annexure showed that the respondent wanted a change in that a scheme for gratuity should be framed wherever services of an employee are terminated by the mills on grounds of old-age, invilidity, incapacity or natural death. It was further claimed that the payment of gratuity in the said cases should be at the rate of one months wages (including dearness allowance) per every year of service. Some incidental demands were also specified in the annexure. The demand thus made was not accepted by the Association, as so it was referred to the Industrial Court. Pending the reference the Employees Provident Funds Act 19 of 1952 came into operation on March 4, 1952, and it was urged before the Industrial Court on behalf of the Association that since the statutory scheme of provident fund would soon become compulsory it would not be advisable to adjudicate upon the respondents claim for the specified items of gratuity at that stage. This argument was accepted by the Industrial Court; it held that when the scheme envisaged by the new Act is introduced it would be possible to see from what date it would be operative, and that, if after the introduction of the said scheme it be found that a sufficient margin is left is would then be open to the respondent and the Association to make a fresh application for the institution of a gratuity fund either for all the employees or for the benefit of such of them as will have to retire within the next few years. It was on this ground that the demand made by the respondent was rejected on April 18, 1952.2. It appears that the prescribed scheme under the Provident Funds Act came into operation on October 1, 1952. In June 1955, a fresh notice of change was given by the respondent to all the mills in respect of the demand for gratuity and the said demand became the subject-matter of certain reference to the Industrial Court at Bombay under S. 73A of the Act. At that time the Association and the respondent had entered into an agreement to refer all their disputes to arbitration, and in accordance with the spirit of the said agreement the reference pending before the Industrial Court in respect of gratuity were withdrawn and referred to the Board of Arbitrators. Before the Board it was, however, urged by the Association that, so long as the award passed by the Industrial Court on the award passed by the Industrial Court on the earlier reference was subsisting and in operation, a claim for gratuity which was the subject matter of the said reference and award could not be properly or validly considered by the Board. This objection was upheld by the Board, and so it made no provision for gratuity. The decision of the Board of Arbitrators in the said proceedings was published on July 25, 1957.3. After the said decision was made and before it was published the respondent made the present application for modification of the earlier award under S. 116A of the Act on July 6, 1957. In this application the respondent alleged that there was sufficient justification for modifying the previous award and for introducing a scheme of gratuity as claimed by it. In this application a demand for gratuity was made on the following lines :(1) In the case of death while in service or becoming physically or mentally unfit for further service : One months basic wages and average Dearness Allowance per completed year of service. (2) On voluntary retirement or resignation of an employee : After 10 continuous years of service in the company same as in (1)(3) On termination of service by the company : For less than 10 but more than 7 years at 3/4 rate of (1), For less than 7 years but 5 years or more than 5 years at the 1/2 rate of (1). For more than 10 years continuous service as in (1) above. It appears that in the application thus made a typing mistake had crept in which failed to type properly the third category of cases. The respondent applied on August 21, 1957, for amendment of the said typing mistake and the said amendment was naturally allowed. It is the demand made by this application that is the subject-matter of the present proceedings under S. 116A of the Act.4. In the present proceedings the Association did not file a written statement and in fact withdrew leaving it open to each mill to file a separate written statement of its own. It appears that there was a difference of opinion amongst the constituents of the Association. Accordingly written statements were filed on behalf of the 65 constituent mills and the large majority of the said written statements raised some preliminary objections against the competence of the present proceedings and disputed the respondents claim for gratuity also on the merits. The Industrial Court has overruled all the preliminary objections and on the merits it has framed a scheme for gratuity on industry-cum-region basis. The award framing the said scheme was pronounced on September 16, 1957. It is against this award that 21 out of the 65 mills have come to this Court by special leave. One of the appellant mills has subsequently withdrawn from the appeal with the result that out of 65 mills 45 mills do not feel aggrieved by the award but 20 mills do; and the contentions raised by them fall to be considered in the present appeal.

Court's reasoning:
It is common ground that the modification permissible under S. 116A does not mean that the provisions of the award must always be reduced; it may mean even increasing the provisions, and so it is urged by the respondent that the word "modification" should receive a wider denotation in the context of S. 116A. This construction no doubt receives some support from the provision of S. 116A that a party may apply for the modification of the award instead of giving notice for its termination; and the latter clause tends to show that the procedure prescribed by S. 116A is an alternative to the procedure prescribed by S.The industrial court was apparently inclined to put a wider denotation on the word "modification" used in S. 116A.10. We do not think it is necessary to decide this large question of the construction of S. 116A because, in our opinion, in the present case, even if the limited and narrow construction suggested by the appellant is put on the word "modification", the respondents application cannot be said to be outside the purview of the said section. There is no doubt that the claim for gratuity made by the respondent in the earlier proceedings has been rejected by the industrial court and that is an award; but, whether or not the present application seeks for a modification of the said award within the meaning of S. 116A would depend on what the industrial court had decided on the earlier occasion. It is clear that the industrial court did not then consider the merits of the claim at all. It upheld the Associations contention that the matter should not be decided then but may be considered later in view of the fact that the Employees Provident Funds Act had already been passed and the statutory scheme for provident funds was about to come into force.It was on this ground alone that the industrial court rejected the claim as it was then made but it took the precaution of expressly adding that after the introduction of the provident funds scheme it would be open to the respondent or the Association to make a fresh application for the institution of a gratuity fund as it may deem expedient to claim.It would not be unreasonable, we think, to assume that when liberty was thus reserved to the parties to make a fresh application the industrial court had presumably S. 116A in mind. In substance, the effect of the order then passed was that the application was regarded as premature and liberty was reserved to the parties to renew the application if the statutory scheme was thought to be insufficient or unsatisfactory by either of them.In such a case, if the respondent applies to the industrial court for modification of its award it is difficult to accept the argument that the respondent seeks to alter the framework of the award or to change any principle decided in the award. The true position is that by the present application the respondent is asking the court to consider the demand now that the scheme has come into force and is, according to the respondent, insufficient to meet the workmens grievance. What the industrial court then promised to consider after the scheme came into force is brought before it for its decision again. That being the true nature of the award and the true scope of the prayer made by the respondent in its present application it is difficult to hold that the application is incompetent under S.have already referred to the items covered in the earlier proceedings as well as those which are the subject-matter of the present application. It is true that the notice served by the respondent prior to the earlier reference specifically set out the claim for gratuity in four categories of cases of termination of services of the employees, whereas in the present proceedings some other categories are included. The objection raised against the competence of the present application purports to treat the earlier notice in a very technical way and confines the subsequent proceedings taken before the industrial court to the said four categories only.There is no doubt that disputes in regard to industrial matters not covered by an award do not fall within the scope of S. 116 of theis difficult to answer this question in the affirmative.It is well known that a scheme for gratuity is an integrated scheme and it covers all classes of termination of service in which gratuity benefit can be legitimately claimed. Therefore, when the industrial court refused to frame a gratuity scheme in regard to the four categories brought before it on the earlier occasion, in substance its refusal amounted to a rejection of any scheme for gratuity at all; otherwise it is very difficult to assume that having rejected the claim for gratuity in respect of the said four categories it would still have entertained a claim for gratuity on behalf of other categories not included therein. That is why we are inclined to think that though in form the rejection of the demand for gratuity on the earlier occasion was in regard to the four categories specified in the notice, in effect it was rejection in regard to the claim for a gratuity scheme itself.13. It cannot be dispute that if the earlier demand had been for a gratuity scheme pure and simple and no categories had been specified in connection therewith the present application for the modification of the award coupled with a claim for a gratuity scheme in respect of all the categories specified in the application would be within the purview of S. 116 of the Act. That in substance is what was happened in this case according to the finding of the industrial court on this point, and having regard to the unusual circumstances of this case we see no reason to interfere withprovident fund guaranteed by the statute under the statutory scheme is one kind of retirement benefit and since this retirement benefit is now available to the workmen it was not open to the industrial court to provide an additional gratuity scheme; that in substance is theEmployees Provident Funds Act has no doubt been passed for the institution of provident funds for employees covered by it; and the statutory scheme for provident funds is intended to afford to the employees some sort of a retirement benefit; but it cannot be ignored that what the statute has prescribed in the scheme is the minimum to which, according to the Legislature, the employees are entitled; and so in all cases where the industrial courts are satisfied that a larger and higher benefit can be afforded to the employees no bar can be pleaded by virtue of the Provident Funds Act. It is true that after the Act came into force, the industrial courts would undoubtedly have to bear in mind the benefit of the statutory scheme to which the employees may be entitled; and it is only after bearing that factor in mind and making due allowance for it that any additional scheme for gratuity can and must be framed by them; but it is not open to an employer to contend that the Act excludes the jurisdiction of industrial courts to frame an additionalmust accordingly hold that the Industrial Court was right in rejecting the appellants contention that the statutory provision for provident fund under the Employees Provident Funds Act is a bar to the present claim for a gratuityis not disputed that the benefit of gratuity is in the nature of retrial benefit and there can be no doubt that before framing a scheme for gratuity industrial adjudication has to take into account several relevant facts; the financial condition of the employer, his profit-making capacity, the profits earned by him in the past, the extent of his reserves and the chances of his replenishing them as well as the claims for capital invested by him, these and other material considerations may have to be borne in mind in determining the terms of the gratuityour present purpose it is really not necessary to embark upon the academic question as to whether gratuity is a part of deferred wage or not; we will assume that it is not.Even so it would not be reasonable to assimilate the character of the scheme for gratuity to that of a profit bonus and to seek to import the considerations of the Full Bench formula which governs the grant of bonus. A claim for profit bonus is based on the assumption that the employees contribute at least partially to the profits made by the employer and that they are entitled to ask for a share in the said profits in order to bridge the gulf between the waged actually receive by them and a living wage to which they are ultimately entitled. A claim for gratuity is a claim for retrial benefit and it is strictly not a claim to receive a share of the profits at all; and so there would be no scope for importing the several considerations which are relevant in determining the claim for profitwe are not prepared to accept the argument that the claim for gratuity is essentially similar to a claim for profit bonus, and like profit bonus it must always be considered on unit-wise basis. Incidentally we may add that even a claim for profit bonus can and often is settled on industry-wisemay be conceded that when an industry-wise basis is adopted in dealing with a claim like gratuity often enough stronger units of the industry get a benefit while the weaker units suffer athe present economic development of our country we think industrial adjudication would hesitate to adopt an all-India basis for the decision of an industrial dispute like that of gratuity and so, on principle, it would be difficult to take exception to the approach adopted by the industrial court in dealing with the presentwould no doubt have been open to the industrial court to deal with the dispute unit-wise just as it was open to the court to deal with it on an industry-wise basis. As we have already indicated there are several factors in favour of adopting the latter approach though it may be conceded that by adopting the said course some hardship may conceivably be caused to the weakest units in the industry.Having carefully considered this question in all its aspects we are, however, not prepared to hold that the scheme of gratuity under appeal should be set aside on the ground that the industrial court ought to have adopted a unit-wise approach.In this connection it may not be out of place to observe that the cotton textile industry is the premier industry of our country and there is a concentration of a large number of mills in Ahmedabad. A good many of them have capitalised large portions of reserves and documents produced in the present proceedings show that the production has steadily increased and has found a responsive market. There is a gratuity scheme framed on an industry-wise basis in operation in Bombay and a similar scheme appears to have been extended to Nadiad and Khandesh. In fact an award for gratuity has been made on an industry-wise basis even in respect of the textile industry at Coimbatore. Having regard to these facts we think the industrial court was right in observing that "there was no justification why an important textile centre like Ahmedabad should not have a gratuity scheme when the needs of the labour require it and the industry can afford it".20. It is true that in dealing with industrial disputes on industry-cum-region basis, if the region covers the whole of the country industrial adjudication sometimes takes resort to the classification of the constituent units of the industry in question. Industrial adjudication in regard to the fixation of wage-structure in respect of newspapers and banks in the country is an illustration in point. The need for such a classification is not as great when the region happens to be limited in area, though, even in respect of a limited area, in proper case industrial adjudication may adopt the course of classification. In the present case the industrial court took the view that classification was not possible and would be inexpedient. No classification was made in dealing with the textile mills in Bombay, and the industrial court did not feel called upon to make a departure in respect of Ahmedabad. We do not think that this conclusion suffers from anyare not impressed by these arguments. The argument about the actual liability accured is really theoretical and cannot have much practical significance.If it is suggested that in framing a scheme of gratuity the capacity to pay should be determined only if the employer can set apart a fund to cover the whole of the liability theoretically accrued, then gratuity schemes can be very rarely framed. Such schemes are long-term schemes and a fund to cover the total liability in that behalf must inevitably be built up in course of time year by year.In regard to the excise duty the industrial court has rightly pointed out that the imposition of a higher duty was the consequence of the excessive increase in prices of mill cloth and in fact it was levied "to mop off those extra profits". When the prices fall down it is not unlikely that the excise duty may be reduced.In any case the obligation to pay excise duty or to contribute to the insurance scheme, though perhaps relevant, may not have a material bearing on the framing of the scheme of gratuity.Then, as to the bonus shares, it is not right to contend that the industrial court has attributed undue importance to them. All that it has observed is that the issue of bonus shares by a large majority of the mills in addition to good dividends during the war and post-war period is an index to the prosperity enjoyed by the cotton textile industry in Ahmedabad. In our opinion, no criticism can be made against this statement. In this connection it may perhaps be pertinent to observe that the statutory ceiling placed on the agents commission may in the due course assist the mills to some extent in meeting their liability under the scheme.The scheme framed is by reference to the basic wages. This position is not disputed. The other material point which deserves to be mentioned is that the calculations made by the Association proceed on the assumption that most of the employees would seek to retire from employment as soon as they complete fifteen years; service. Such an assumption seems to us to be not warranted at all. It is common ground that employees generally seek employment in textile industry between 18 and 20 years and the age of superannuation is 60. On an average each employee would work 35 to 40 years and so it would be unrealistic to make calculation on the basis that each one of the employees retires as soon as he completes 15 years of service. In the absence of better employment in Ahmedabad it is quite likely that most of the employees would stick on to their jobs until the age of superannuation. The figures collated are in respect of the years 1953, 1954 and 1955. They are collated in seven different columns, and ultimately the percentages of persons who retired during the three respective years are worked out as at 3.13%, 4.13% and 3.84%. The industrial court has observed that the largest number of persons retired voluntarily on payment of gratuity because there was an agreement between the Association and the respondent whereby the respondent agreed to rationalisation which involved retrenchment of staff on condition that the surplus staff retrenched would be given gratuity. It also appears that the retired workmen included a number of employees who voluntarily resigned because they had not completed 15 years of service and were not entitled to gratuity. It is on a consideration of all the relevant facts that the industrial court came to the conclusion that the number of persons who would have been entitled to gratuity under a normal gratuity scheme would probably not have exceeded 2% of the labour force. If it is assumed, as we think it can be safely assumed, that on an average an employee works 35 to 40 years with his employer the said percentage deduced by the industrial court cannot be said to be erroneous. Even so the scheme framed by the industrial court has provided, inter alia, one months basic wage for each completed year of service for the period before the coming into force of the Employees Provident Funds Act, 1952, and half-a-months basic wage for each completed year of service thereafter, subject to a maximum of 15 months basic wages to be paid to the employee or his heirs or executors or nominees as the case may be. This provision which amounts to a departure from the Bombay scheme of gratuity brings out that fact that the provisions made by the Employees Provident Funds Act have been duly taken into account by the industrial court. We are, therefore, satisfied that the scheme framed by the industrial court does not suffer from any infirmities as alleged by the appellants.