Case: Sudhir Chandra Sarkar Vs. Tata Iron &amp; Steel Co. Ltd. And Others

Appellant, an employee of the Tata Iron and Steel Company Limited (Company for short), has been chasing a mirage; to wit, to recover a paltry sum of Rs. 14, 040 being the amount of gratuity to which he was entitled for the continuous service rendered by him from 31st December, 1929, till 31st August, 1959, under what are styled as Retiring Gratuity Rules, 1937 (Gratuity Rules for short), from the Company and in this wholly unequal fight he laid down his life before enjoying the pittance to which he was entitled after three decades of loyal service. What a dreadful return for abject loyalty ? When the appellant retired by resignation from service he was paid his provident fund dues but gratuity which he was entitled to be paid under the relevant rules was not paid to him. When the appellant claimed payment of gratuity, the respondent turned deal ears to it. Appellant served a notice dated 6th September, 1961, calling upon the respondent to pay the amount of gratuity being Rs. 14, 040. The Company did not respond to the notice. Thereupon, the appellant filed M.S. No. 452 of 1962 in the Court of Subordinate Judge at Jamshedpur2. The respondent appeared and contested the suit, inter alia, contending that "in terms of the contract of service and particularly having regard to the relevant rules under which gratuity can be claimed, the same is payable on certification of satisfactory service by the head to the department, and it is payable at the absolute discretion of the company irrespective of whether the employee has or has not performed all or any of the conditions stated in the rules and no employee howsoever otherwise eligible is entitled as of right to any payment under the rules."3. The learned trial Judge framed the issues on which parties were at variance. The learned Judge held that the plaint does disclose a cause of action and the plaintiff was entitled to claim and recover the amount of gratuity with interest thereon. Accordingly, the suit was decreed against the Company directing it to pay the amount claimed in the plaint with future interest at 6% per annum with costs4. The respondent company preferred First Appeal No. 444 of 1963 in the High Court of Judicature at Patna. A Division Bench of the High Court held :(i) that the service conditions of the plaintiff were governed by the Works Standing Orders and that it was an implied condition of service that the plaintiff could get gratuity in accordance with the Gratuity Rules;(ii) that in view of Rule 6, an employee governed by the Gratuity Rules is not entitled to claim the same as a matter or right but he merely attains the benefit of eligibility or suitability for retiring gratuity and not the right;(iii) that until and unless the company has decided to pay the gratuity in accordance with Rule 7 or otherwise, the mere fact of the employee becoming eligible to get it under the relevant rules which can be enforced in a civil court because the matter of payment of gratuity is at the absolute discretion of the company as provided in Rule 10, and the employee howsoever unfortunate the position may be under the modern stage of the society, is not entitled to claim it as a matter of right because even though payment of gratuity under the Gratuity Rules is an implied condition of service, yet the condition is further conditioned by the provisions made in the Rules and is subject to them;(iv) that such a claim may be enforced before the Industrial Tribunal underthe Industrial Disputes Act, 1947, but it is not possible to hold that the law of contract or the law of master and servant which is the only law to be enforced in a civil court can justify, on interpretation of the Gratuity Rules in question, that the plaintiff can be granted decree for payment of gratuity on the footing that it was the unconditional or unconditioned contractual obligation of the employer to pay such a money;(v) the payment of gratuity money is not a gift - pure and simple, but under the relevant rules it is in the nature of an inchoate claim or interest and not a right enforceable by a suit in court, because, under the contract of service, the grant of gratuity has been left at the sole discretion of the employer as the relevant rules provide that no employee, howsoever otherwise eligible, shall be deemed to be entitled as of right to any payment under the rules.Accordingly, the appeal was allowed and the judgment and decree of the trial court were set aside, the plaintiffs suit was dismissed, directing the parties to bear their costs.Hence this appeal by the plaintiff by special leave.

Court's reasoning:
If gratuity is a retiral benefit and can be earned as a matter of right on fulfilling the conditions subject to which it is earned, any rule conferring absolute discretion not testable on reason, justice or fair play must be treated as utterly arbitrary and unreasonable and discarded. If rules for payment to gratuity became incorporated in the Standing Orders and thereby acquired the status of statutory condition of service, an arbitrary denial referable to whim, fancy or sweet will of the employer must be rejected as arbitrary. Section4 of the 1946 Act, which confers power on the certifying officer or appellate authority to adjudicate upon the fairness or reasonableness of the provisions, would enable this Court to reject that part of Rule 10 conferring absolute discretion on the employer to pay or not to pay the gratuity even if it is earned as utterly unreasonable and unfair. It must be treated as ineffective and unenforceable. It is well-settled that if the Certifying Officer and the appellate authority under the 1946 Act while certifying the Standing Orders has power to adjudicate upon the fairness or reasonableness of the provisions of any Standing Orders, this Court in appeal under Art. 136 shall have the power to do the same things when especially it is called upon to enforce the unreasonable and unfair part of the Standing Order. It, therefore, follows that the part of Rule 10 which confers absolute discretion on the employer to pay gratuity even if it is earned, at its absolute discretion is ineffective and unenforceable. This approach does not require any precedent but if one is needed the decision of this Court in Western India Match Company Ltd.s case (supra) clearly rules to that effect. In that case, the company relied on a special agreement which was to some extent in derogation of the provisions of the certified Standing Order. The court observed that to uphold such special agreement would mean giving a go-by to the principle of three-party participation in the settlement of the terms of employment, as represented by the certified Standing Orders and, therefore, the inconsistent part of the special agreement is ineffective and unenforceable. The claim to absolute discretion not to pay gratuity even when it is earned is a hangover of the laissez fair days and utterly inconsistent with the modern nations of fair industrial relations and, therefore, it must be rejected as ineffective and hence unenforceable18. Viewed from a slightly different angle, our Constitution envisages a society governed by rule of law. Absolute discretion uncontrolled by guidelines which may permit denial of equality before law is the antithesis of the rule of law. Absolute discretion not judicially reviewable inheres the pernicious tendency to be arbitrary and is, therefore, violative of Art. 14. Equality before law and absolute discretion to grant or deny benefit of the law are diametrically opposed to each other and cannot co-exist. Therefore, also the conterment of absolute discretion by Rule 10 of the Gratuity Rules to give or deny the be rejected as unenforceable19. The High Court reversed the decree of the trial court on the sole ground that Rule 10 confers an absolute discretion on the respondent company to pay or not to pay gratuity at its sweet will. Once Rule 10 is out of the way, the judgment of the High Court has to be reversed. Accordingly, this appeal succeeds and will have to be allowed20. The trial court decreed the plaintiffs suit with costs and with interest at 6% per annum. Interest at 6% per annum has become utterly irrelevant in these days with devolution of the rupee. Further, in our opinion, the company declined to meet its obligation on an utterly unreasonable stand and denied to the plaintiff for a period of a quarter of a century what the plaintiff was legitimately entitled without the slightest shadow of doubt. Therefore, while allowing the appeal in order to compensate the loss suffered by the plaintiff who died before enjoying the fruits of his decree, we direct that the interest shall be paid at 15% per annum and full costs throughout.