SUDHIR CHANDR, A SARKAR

--:rATA IRON & STEE_L CO. LTP .. AND OTHERS.

March 27, 1984

(D.A DESAI, A .. P. SEN ANQ V. 'BALAKRTS r.-; A ERADI, JJ.]

Rttirlng Gratuity Rults, I9J7-Rule /(g)-Definition of 'Retirtmtllt' scop~ of -Empluytt after y; orklttg fur 29 years left service by reslgl!ation which .;01 arce,_ udbyemplo)'U-Whtthn employee cotJid be said to hav~ rttittdfrom :ervice. ·

 1/ttlring Gratuity Rules, 1937-Ru/e 10 validity of. Part af Rule 10 which fNiftrs abso/JJre diScretion 011 tmplvyer to pay gratuity, even of it is earned, at il.r dJJOiute discretion, u inefftcrive am/ enfurceab/e,

InJ.strial Employment (Standing Orders) Act, 1946-Sation 3--Certi/ieJ !ilrl!llling Ordtrs-:Nawr' of-Whther form parr of contract of suvice-IVherflu flotlr brtarlo can be rtpaired b) civil suit.

 Words and Plorases-''Gmtuity"-Concept of. Gratuity is a retirul benefit a1 ""as11re of social seatrity ; it Is not lfrttlrlitous but has to be eumed by lo>nz N .Lontinuout sen•il't; il can be rc., vt!red Jlrrough ciril Juit.

lbe app:llant .,..ho ro, igned from service of the: respondent company after '<'tvinc for o•er 29 years wu• not paid retiring grntl, lity by the respondnt, even ., hen the appclbnt had become elil!ible. for it unJer the relevant gmmity ruloos 111tltd as tbe RetiriOII: Gratuity Rules. J9J7 \Grtuity Rules for short). Tbo . •PP<llantlilcd a 'uit in the Court of Subordinate Jutlge for recovering tbe

"mount of Voltuity. The Subordinate JuJgc decreed the suit. The High Court . allowed tilt app:al f1led by the rc, pondent. Hence this appeal. The respoo. • . dent• submitted; (I) that since the appo:llant did not retire from the service but

~It the ICnu by resining the po!l, he was not eligible for gratuity untler

ult 6 or the Retiring Gr11tuity Rules, t 937 ; l2) that uoJer Rule 10 the ..:tiring . :atu!!y wu payable Mt the absolute discretion or tho responent and rol\ld not

t claoacd •• a matter or right by the appellant even if he had become clisiblo

or~ ; and (JJ thut claim to aratuity could not be enforced in the dvil rourt.

. Allu., inathc appca I,

. H£Lo : Rule 6(a) which preribcd the eligibility criterion f<>r p:~.yment gf lfllrlllJ . cratUJy pmvidcs, f/11ter ulla, that every permanent uncovenanted em of tbe Comtany, will be elivible tor rdirinll Qratulty • . The expression ttlremcnt• h ... __ I . . r . by . as uocn defined in Rule l(a) to mean 'I ld ternunat1oo o serviCe ll ~<:owq. or any cau~ other then rcmovul by dhdlDrge due to misconduct'.

ii!Jnott<4 thQt the appellant wu permanent uncovenan; ed :mployee or

1.f i\ A 'f , j .i

...

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SUPREME COURT REPORTS [l9S4j 3 S C . it. . . .. . . .. . ihe Company paid on monthly basis and he redercd sc, rvicc for over~ Y•• and his srvice came to an end by rea<on of hts tcndcnng resignation V.hit~ was unconditionally aa:cpted. II Is. not suggested that he was romovcd I> discharge due to misconduct. un.questJonabl~. therefore, the appellant h: within the meaning of the cxprcsston, thus .r•t•_red r"'IJ'l service of the '"llOo: . dent and he is qualified .for payment of gr.ttutty to terms of Ru!c 6. [Jl2D.f] .

According to the High Court, ihc , service conditions of the apP<ilant,,;,;~ gavemed by !he Works Standing Orders or the rc~ondcnt. No C<Ctption h" . be•n taken to this finding. These Wqrks Standtn~; Orders were framed •n~

certified under the Industrial Employment (Standing Order:;) Act, 1946. n ..

Act wu 8 kgi.slatlvc response to the /abJ~Z [airt rule or hire and fire ot sweet . will. It w3s an auempt at intposing statu(Ory comrac:t of'service b¢twcn tv."Oparties unequal io negotiate, on the footing of equ3 1 ity. The intendment .. j ·.·.· underlyini the Act and the provi•ions of the Act enacted to give rffect to the intendment and the scheme of the At l=lve no roorn for doubt that Stand · ing Orders cerjificd under the Act become part or the staiU10ry t<rms an~ conditions of .. rvice between the employer and hi• cmp!o)<< nnd they eo .em the relatiouship bet wren the parti<s.I333E-3J4G] ...

Wrttrn India March Company !.rd. v. Workmn.,: [1974] I SCR 4H. WJtk . man of Mtssrs FirtJiont T)" & Rul>ber Ca. of frtdia (Pl Lrtl. v, Manoxrinnr

and Or1; [1973] 3 SCR '87 ot 612. Workmn: ill fJurki!oglwm uurl Cumurfc Mill• Mudros v. Buckingham ond Cantalic A[; /Is: ]1970]1 labour Law Journ•l 26 at 29. M /s. Glaxo l.Aborarorl-. (I) Ltd. v. Tl.t Prmlill/! OJTrur, Lob..•:v Court, Mfrrut & Ors; [19R4] t SCC 1. A.\"'11 Efu('{cily Supply Cu. I.J.d. f, s, i Allot/in & Ors: [197U]l SCR 805, ref"rred to.

Upon a corTbined r•ading or Srandio11 Order (S.O ,) S4 ulong with RuleS and 6(u) or the Grtuity Ruks, it becomes diltinctly ck"r th•t PJY••~<nt of arouuily W.u dn cxprcs~ or st.tlutory conditiont of service eovcrlnv th.: h:lJai.:>n ohip bct.,."Q the appcllanl and the rc>po; ulcn t. Thorcfor~, It wuuiJ lJ<; <•bli~" t.'r)' Upon the rnpondcnt lO pay (I•Jtuity O; J rtiwn!Ut to tho arp:i!Jht. JfthC rrtpondcnt rdu' C'1 to pay or dl\ChJrgcits stJtutory obli~tuoo. th: claim on be enrorc<d by. civil uit, Te Hl Court WJS or the orinion th>l in""" of . Rule)'' or the Gratuity Rb. t":ovcty of gr>lUJty c..nnct b<: cnrom:d by. ci•il ,_uit. But upon an lndu.ttrial ui•rute jng r:thcd the lmlu•trl.il Tntuc.Jt

my _bc n I positiOn 10 award th: if:J1Uity ;11 3 m:lltc; or rh; ht ev.:n unJ.:r lh.: <ltltrn& rules, In reochlna this c"nctu5ion th~ lllt:h Cuurtovrlool.cd the erT ct. of the certified litandinv Ord:r1 and th~. inl<rrelutiun b<twe<:n rhe GrJtu'l)'

. Rulo ar.d S.O H, Whco under 19-tG Act, nn obiliw:n'10n is c:1>l o.1 the~·

Jllo>er to spccofi<ully nd prcci>cly Ia)· down the cunditions or crvice, 5<:· tJt.) •uhjccu the en•plo>)cr to~ V<n•ht if any act is <lone In contr.tvrntlv~ uf t~¢ Suondinf Orden e<:rtilied unJcr the Act, A rae~ I of collective bar~:inin& h th.ll •n) ~et\l<m<nt rrivcd at between the JHrtiC~ would be treated ws inccrr"•t•J In the c:.ontroct of~··"' 0 f ... h cmpiO)~C voverncu by the >ettl<nt<nt. Sm•iiJr~ Y

rllfo :.d StJndins Ordcrt wh~~:b Sttut<mly prcs.:ribe the comlitk'ns r scrv~<.'#.

o.b~ I be dcerncd to be lncorporatt<l in lhc contra~! of tmpk>ym<nl of ea.:h ••~· p:O}cc "'ith hi> cmp[O)Cr.

J( tht employer C<>mllliti U brcadl Of th< ,,, ntr~'t or en.plvJn:<Ut. the tn:e con tc cnfocced or c.meJicJ dondill~ Ul"-'" ,,, e ...

s.c. SARKA.R 1' •• TA.TA IRO~ &_ Sl'EfLS CO. 327

: bY ~-civ11 suit. The jurisdictbn of civil court among<! others is

,.r~C suh\ the natur~ of reliofclaimd. If the relief claimed is a money

• termlned 1 d' r h r .c forcing statutory con 111ons o scrv1c~. t e ctv1 court would

G"l~ byh ~~ 1udsdiction to grant the relief. [JJSF-337Bl (tf!JIOIY ••~ • . • , '. •

. [:Wuur [a,. f,.rt aiul Matda/J bj• PaulDavl-. and Mark Freedland p.233

S O.~Jn<lustrial Rdtim>J in Great 8 itnfn p. 5~-59, referred to. •"" yJ:tl ' . . • ..

Jn the instJnt ca<•. the appcll~t filed the uit alkging taf he wa~ entitled tOpl)m<nt of ~"'tu ity o~ co:nplc•thon _or scrv1c~ fo_r, the pertod _prescribed. He

:· .. ~!ltgtd it and the Hrh_C''.U' t accept,·~ tt as _B condn1on of sery; ce. Its breach •®ld give rise to a CIVIl dr.<putc nnd crv1l sUit would be the only remedy. In the weofv.orkmcn t:ov.•rnerl by th~ lnd"'trinl Dispute< Act, 19-l7, Sec. 33(c)(2) ,., y provide an aJditional forum to reCO\'Cr monetary benefit. It is nt suggesu41hat appellant wa< a wo, kman_governcd by the Industrial Disputes Act. The tlilh Court wa~, :herdore, in error in holding that the remedy was only by .-ayoran indu!lrial dispute and not by a civil suit, [JJ 7C-D] ·

I l

The Court while interpr:ting nnd enforcing the relevant gratuity rules will IIJvtto be.:ir in mind th~ co1cePt of gratuity. The fundaJllental principle under

!inc ar.uuity i~ that it it a rctirment benefit for long service as a provision Cor

ld •et Deri1ands of socia! '' curity and social justice made it necessry to ,..,.; de for payme••t of gratuity. On the enactment of the Payment of Gratuity Act, 1972 a statutory llabiluy was cast on the employer to pay gratuity. .. . . . .

[3JSCD1

Pauion and , ratuity which have much in common are wellrecognised retirol lrmrfi11 n musurt:! of soda! sccrity. It Is now wctl-,.n led that pension is a

IJht lnd payment O( it docs not depend UpOn the discretion Of the employer,

'-It~ C.ln I* denied at the sweet will or fancy of the employer. If pension 080 ::; e:o.-cred through civil su:t, there js no jultilication In treating gratuity on a

"'"~ foot inc. Pension and gratuity in the muller of retirnl benefits and for 110&the\Ome must be put on par.l339G-H; 340AJ. .·

UJ ::vha~Pi'r Tapti Mil/, Lid. v. 8;1rltanpur Tapll Mil/$ McJ:door Smgll: [1965] 'll 4~3• Dtukinundun PraJotl v. Slille of Bihar & o,.., [1971] Supp. 'SCR o,,: t <{ Pun}ob & ~"' v. f<tbal S/nftlr, [1976)3 SCR 360, D.S. Nakara ..1 '. nlun of India, [198}] 2 SCR 16~; referred to. •

lrtht, ur.,~ . • s •· 0,41 or P•Y>t:ent of gratuity become incorporated in the tanum& llllJdtheL . " f • R •lbrtrary dto ""Y lcqulrctl the status of tho statutory condH 10n o servtCC. a : rt}C{tfd otl rcferl>lt to whim funcy or wect will or the employer n•ust bo

f)~ t\lli.~' l<bitrary, Sc. 4 oC ; he 19~6 Act whkh confers power on the ttrti• t 'ltnt, j .ef or the lppcllacc authority to adjudicate Ul"-ln the fulrn<'>> or reason. •Mr.'!) or the Provisions would cnabl• thh Court to rj"ct that part t>f Rule IO ">nrrs ,__ . " r · !'""d . ~""'lute discretion on the employer to pay 11rntu•ty even I It IS ,.,•t, tsabr n:f d trr!Cittr.b so Ute di<crction a~ ullerly unr<asonable, IOC ec !YC an "'l., ro, le.Th; at Part or Rulo 10' mu•t therefore be 1reated ns ineffective D.lld tfib~. l3.10c.o] • •

8 ( .

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328 ,

SUPREME COURT REPORTS U984J 3 s.c.lt..

Tbc claim to absolute discretion not to pay gtatuity even When it is t:l " is a bang o\ltr of the /oiJstZ fa ire days and utterly inconsistent with the mOdrne.J notion of fair industrial relations and, therefore, it must be rejected as inctr.; rn and beoce unenforceable. [340H) . .

Wuttrn India Match Company Ltd. v. Workmen, [1974] I SCR {l-4 referred to.

Our Contitution envisages a society governed by rule of law. Ao!ute discretion uncontrolled by guidelines "'hich may permit denial of equality bcfo~ Jaw is the anti-thesis of rule of law. Absolute discretion not )\ldicinlly rc\'icwabl~ inheres the pernicious tendency to be arbitrary and is, tb<refor~. violative of Art. !4. Equality before law and absolute discretion to grant or deny bcncGt of the law iue di3metrically opposed to each other and cannot co-exist. Thcn:for<. also the conferment or ab!olute discretion by Rule 10 of the Gratuity Rules toai've or deny the benefit of the rules cannot be upheld and mu•t be rejected :u. uneoforceable.I34JA-CT

CIVIL ArPrLLA.TlO JURISlJICTJON :Civil Appeal

No. 1803 of 1070

From the Judgment and Order dated 6.8.1968 of Pijtna High.

Court in first appeal No . .444 of 1967. -

D.N. Mukheiu, Ronjun Mukherjee, A.K. Gonguli & S.C. Ghosh for the appellant •.

R.B. Da!ar and Ms. Vina Tamta for the respondents . .

The Judgment of the Court was delivered by

Dv.sJ J. Appellant, an employee of Tata Jron nnd Suet Company. Limited ('Company' for short) bas bee a chasing n mirag~: to wit !o recover a paltry sum of. Rs 14040 bemg the amount of gratuity to which he was entitled for the. continuous service rcnMr ed by him from Dcember 31, 1929 till Augut 31. 1959 under wiHtt are styled as Retiring. Gratuity Rules, 1!137 ('Gratuity Ruks' fr sbort) from the Company and in this wholly unequal tight he 1; rlll

down his life before enjoying the pillance to which he wus cntil"t after three dcades of loy11l service. What a dreadful return for abJect loyally'! h(n the appellant retired by resignation from service ~~ was patd hts provident fund dues but gratuity which he wus cntttl to be paid under the relevant rules was not paid to him. WheO th~ appellant climed payment of gratuity, the respondnt turned dca

' .

' I

S.C. SARK~R V. TATA IRON & .STEEL CO. (Desai, J.) . 329

ears to it. Appellant sevred a notice dated September 6, 1981 call~

ing_ upon the r.espondent to pay the amount of gratuity being Rs. ·.

14040~. The Company did not respond to the notice. Thereupon the appellant 'file<l,.M .S. No. 452 of 1962 in the court of Subordinate

Judge at Jamshedpur.

The respondent appeared and CO!J.tested the snit inter-alia contending that 'in terms of the contract of service and particul.arly having regard t? the relevant rules under which gratuity can be claimed, the same -is payahle. on certication of sntisfactory service by the

' hea~ of-the department; and it is payable at the absolute discretion

of the Company irrespective of whether the employee ha.s or has not . C 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.'

The learned trial Judge framed the issues bn which parties . were at variance.

Th~ learned Judge held that the plaint does dis-* D• close a cause of action and the. plaintiff was entitled to claim and' recover the amont of gratuity with interest thereon. Accordingly, the suit was decre<; d against the Company directing it t_o pay the amount claimed in the plaipt with future interest at 6% per an11um .4 with costs. ·

E . ...

The respondent Company preferred Fist Appeal No: 444 of 1963 in the High Court of Judicature at Patna. A Division Bench of the High Court h'eld : ~) that the service conditions of the plain: tiff were governed by the. Works Standing Orders and that It was an implied condition of service .that the pal in tiff 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 of right but he merely attains the benefit of eligibility or suitability f9r the retiring gratuity and not the rigqt iii) that until and unless the Company has decied 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 ?f

G ..

, payment of gratuity is at the a qso!t1te discretion of the Company as -1 provided in Rule 10, and the employee, howsoever; unfortunate the position may be under the mod ern stage of the society is not entitled to ct'airn it as a matter of right because even though payment of

gptuity underOthe Gratity Rules is an implied _condition of service,

-+ 330

SUPREME COURT REPORTS

[ 1984) 3 S.C.R. l

yet tlie cndition is further conditioned by the provisios made in the. . . . .

Rules and is subject to them; .iv) that such a claim may be enforced before the Industrial Tribunal under the Industrial Dispu.tes Act, 1947 brit it is not possible to hold . that the law contract or the law of master and servant which is the only law to be enforced in a civil court can justify orr interpretation of the Gratuity Rules jn question that the' plaintiff can be gran fed decree for payment of gratuity on the footing that it 'f3S he unconditional or uncondition- ed contractu~! obligation of. the employer to pa)' such a money ; v) . the 'payment of gratuity money is not a gift-pur~ and simple, but ·

under the relevant rules lt IS in the nature of an incohate claim Of interestand not a right enforceable by a Suit in COUtt, because under the contrac~ of service, the grant of gratuity has been left.to the sole discretion of the emp1oyer as the relevant rules provided that no employee howsoever othcrvise eligible shaH be.deemcd to be'entitlcd

as of right to any payment under the rules.

Accordingly the appeal was allowed and the, judgm ent and decree of the tdal court were set _.aside and he plaintiff's suit was dismissed, directipg the parties to

bear their costs.

.~· tJ ence this appeal by the ptaintff by special leave:

. E At the ote.t it is necssary to ntice the relevant rules rtlied. ·~ upcn by the respondcpt in support of its submission that the gratuity cannot be 'Claimed as a matter of right and the c1aim to gratuity can.not be enforced in the civil court. The Retiing Gratuity Rules came into force with effect from April.}, 1937 and at the relevant time, the rules as Bi11ended in 1948 were in. 9peration. Rule 5

 F provides for 1 retiremnt of every uncovenanted employe~ of tl1e Company on attaining the .age of 60 years 'subject to the right of the company to grant extension. This rule is a mere incorpo'ration pf /-1 S.O. 54 which provides for retirement on attaining tl'te age of 60.

Rule.s 6, 7 and 1_0 may be.Cxtracted : ·

''6. (a) Subjed to the conditions referred to in these rules, evl!ry per mapcnt unconvenanted employee.of the Com~ pany, whether paid on _monthly, weekly or on daily basis, inpluding those borne on the pay rolls of the Company of the Collieries and <tt Ore Mines and Quarries, will~ eligible for a retiring gratuity wh.ich shall be equal to half a month's salary or wag; s for every completed year of continuous sel'vice~~

I .,..

S.C. S, l..RKAR v. TATA :iRoN & STEEL CO. (Desai, J.) 331 • subject to•a maximum of twenty months salary or wages in A :all,

(b) Provided that when an employee dis. retires or is 4ischarged under Rule ll(2)(ii) and (iii) hereof, before he. 'has.served the Company for a continuous period of 15 years~ a gratuity ordinarily limited to half a month's salay or wages for each qualifying year ma'y be paid subject, however, to a maximum of 6 n\onths' sa1ary OJ wages in an.

(Amended vide {3oard Resolution No. VII 'dated 2nd

B . '

.. July, 1953.) C

. (c). The retiring gratuity will be basd on the rate of <the salary or wages applicable to the employee in: .the last

mont~ of ctive service or if the employee has retired while. <On leave, in the last month prior to the employee going on 1Ieave . .

(d) In the case. of an uncovenanted employee wl\o hs 'been transferred to another Tat a concern, the retiring • gratuity payable to him under Rule (4) 8 (a) heretlnder will be based on the rate of the salary or wages:applicable to the -employte in the lastmontlr of' service with the Company,

On focc from 1.4.1-946 as per Board Resolution ,.<fated 8.4.1948.)

7. Notwithstanding atything contained in these Rules :a gratuity shall become due and be payable and shall always 'have been deemed to have become due and payable only in ·

:such instalments an.d over such period or periods as may • be fixed. by the Board of Directors of the Com2any or subject .to the direction of the Board by the Managing Agents. Until . . ' . ' :any such instalment shall become {)r have become due and payable, .the employee or any dependent who qualifies for :paynicnt under the Gratuity Rules shall not be eligible to

receive or be paid any such instalment of the gratuity.

l 0. AU retiring gratuities granted under these Rules nther than special gratuity to be paid l}rider the provision~ of :Rule 22 hereof shall be at the absolute discretion of the Com-

SUPREME COURT REPORTS [I984] 3 s.c.!tl . . . . . . . . pany Irrespective of whether an employee .has S)r has not performed ail or any of the conditions herein after stated, and no employee howsoever otherwise eligible shall be deem~ ed to be" entitled as of right to any pamyent under these -

Rule~

...

.(Amended vide Board ..Rso!ution No. v dated 25 S~ 1955)."

•I? ...

.. .,

The contentio~ of therespndent is thatthe plaintiff did not retire from servi?e but he left the serviCe, o~ the CQmpany by resigning his post. This aspect to some extent agitated the mind of the- . "High Court. It may be dealt with first. It is not only not in dis- . pute, but is in fact conceded that 'the plaintiff did render continuous ..

service from Deccmber.31, 1929 till August31, 1959. On exact computation, the plaintiff rendered service for 29 years and 8 months. Rule

6(a) which prescrjbed the eliglbility criterio'n for payment of gratuity • provides that every -permannt uncovena11tetl employee of the Com-· pany whether paid on monthly, weekly or daily basis will be eligible for

retiring gratuity which shall be equal to half a month salary or wages for ever.y omp]etedyear of continuous service subject io a maximum. of 20 months sala, ry or wages in all provided that when an employee dies, ntires or isdischa; ged under Rule 11(2)(ii) and iil) before he has. served the Company for a continu, us period of 15 years he shall be paid a gratuity at. he rate, therein mentioned.

The expression .. "retirement' has been dfin_ed in Rule 1 (g), to mean 'the termi'nation,; of.service. by reason of any cause other than removal by diseh argc due to misconduct'. It is dmitted that the plaintiff was a perilla-- nent unconvena'ted employee of the Company paid on rrionthly' . . basis and he rendered service for over 29 years and his service. came . to an end by reason of his tendering resjgnation which was uncondi~- . tionally accepted. It is not suggested that he was removed by disclrge due to misconduct. Unquestionably, therefore, the plaintiffre.tired from service because by the letter Annexure 'B' dated Au'gust

26, 1959, the resignation tendered by the plaintiff as per his letter dated July,. 27, 195.9 was accepted and he was released from his service with effect from September 1,1959, The tetminatio.{l of' service was thus on account of resignation of the plaint.iff being,

accepted by the respondent. . The plaintiff has, within the meaining,. of the eJ~.pression, thus r.:tired from service of the respondent .and-A ·. h~ is qualified for payment of gratuity in terms of Rule 6.

~ . )

S.C •. SARKAR. v. TATA IRON & STEEL CO. (Desal, J) 333

Rule 7, i~ our opinion, has hardly any relevance because it enables the Company to pa, y gratuity by iilstalments.

It is Rule 10 which is material for the purpose. It provides that'payment of retiring gratuity under the Gratuity Rules, othr . . than special gratuity to be paid under the provisions of Rule 22 which is not the case herein, shall be at the absolute discretion of the Company irrespectiv~! of whether an employee has or has not performed all or any of the •condition<; hereinafter stated, and no employee howsover otherwise eligible shall be deemed to be entitled as of right to any pyment under th~ rules. The stand taken by the respondent to deny gratuity to the pl\lntiff is that gratuity pay~

able under the rules is a matter of employer's largesse to be distributeJ atthe absolute discretion of the Company and cannot be clai- .med as a matter of right even if the concerned employees has fulfilled the eligibility criteria. It is the interpretation of this Rule which would govern the outcome of this appeal.

It 'may be mentioned that the High Court which ultimately upheld the cqntention of the respondent has.specifically held that gratuity was an implied condition of service of the p1aintiff in accor dance with the relevant -rules.

The High Court reach.ed this .conclusion by first referring to Works Standing Orders framed by the

Compny which govern t.he conditions ofservice of the plaintiff.

In other words accmding to the High Court, the service conditio11s of the plaintiff wsre g9verned by the Works Standing Orde, rs. It is therefore necessary to determine the character of the Works ' Standing Orders Exh. C framed by the Company. This aspect was

uverlooked by the High Cow-t with the consequence that tne High

Court found it difficult to enforce the claim of gratuity against the respondent by a decree of the court. What then is the character of the W otks Standing Orders framed by the Company '? Are .they mere unenforceable rules or arc they statutory in character or have a statutory flavour'? If they are statutory in character and they form part of'the contract of service of every employee governed by the same, then the question would be whether its brch can be 'repaired or enforced by a civil suit ? -

F -

The Parlaimet{t enacted the lnudstrial Employment (Standing Orders) Act, 1946 ('1946 Act' for short). 'fhe longtitle of the Act, Ht providys that it was an act to require employers in industrial esta~ blishments formally to define conditions of employment under them.

' !.~

...

IE .

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If "

<G ·

334 _SUI'{(EMe CO~JRT REPORTS [1984]3 s .

'""•· ..

Tile pramble of "the Act pr9vides that it is expedicni t~ ' . , . , . d fi . require employers m ~~ustnal estbhshments to e ne With suffieitnt Prcci- . sion th!! condtttons of employment under. t)lem and to malce.th

said conditipns known to workmen employed by theni. Bv Scc11-.e . . 3, a duty was c_ast on the employer , governed by the Act to submit to the Certifying Officer draft standtn.g orders proposed by him for adoption in his industrial establishment. After going througlt tlJe procedure prescribed in the Act, the Certif) ing Officer ha~ to mtifv the draft standing orders . . _Section 8 requires the Certifying Oflicw to keep a copy of standing orders as finally certified under the Act · in a register to be maintained for the purpose.

Sub-sec. 2 of Section I~ Imposes a pealty on employer who does any act in contravention of the standing orders finally certifid under the Act. The act was a lcgi<lative response to the /oisse: firs rul¢ of hire and fire at swed will. It was an attempt at fm; Jo>ing a statutory contract of service between A'II"' parties unequal to negoti3te, on the footing of equality. This wa~ vividly noticed by tilis Court in ws/em India MIIUI: Company Ltd. v. lVorkmenL a; und:r:

"In the sunny ·. days of the market economy theory people incercly believed thut the economic lawbf demand and . supply in the labour marl; ct would settle a mutua!ly b:neliciJI

bargain between the employer and the workmen •• Such a ba•jpinth)!Y took it for granted, would, sccun: f; ir terms nnd conditions of employment to the work man. This \a IV the~ vnc rated as nturallaw, They had an ubiding fjith in thcvrity_ of this law. But the experience of !he working of this law . over a long period has belied their faith. ••

The intcndmcJ; t underlying the Act and ihe provisions of the Act enacted to give clfcct to the intcndmnt and the scheme of the Act leave no.· room for doubt tliat the Standing Orders

ccrtJc_d unucr the 19~6 Act become part o(the tatutory t, rms and conLIHtons of" >crvicc: between the employer and his cmploye 30J they &<>Vern te rd.ttionship between the p.trtics. Jl'orJm, n pf

MnrJ Ftrc' .. tvtu TJr~ & Ru?hr Ca. uf Jrrdiu (P) Lrtl. v, Manas("

111 ~' 11 11'1" OfT.' Workrwtl in B t klrtglttm cr1.1 C.mt&Jtic Mills M<~J(IJS v, B.tki, gha''' Ulll/ Curmulc Mlll.f~ .mtd M/J GI<I.~ :J LJ1bcJratrHit"J (/l

(!) )197~J I SCR 43-1.

ll) 111173) 3 SCR S87 at612. (lJ [1970) bour Liw Joornal 26 at 29.

 ..

S.C SARKAR v. TATA lRO~ AND STI!£L CO. (.tJesai; f.)' .

. Lfd. v. Y:he Presiding Officer, Labourcoart, Meerut & Ors. 1

The High Gourt recorded the finding that service conditions of the plaintiff were governed by_ the Works Standing Orders. No exception has been taJ<.en to this finding . .a may at once be noted that the . Works Standing Orders of the Company are Certified Standing Orders, under the 1946 Act evidenced by Certificate No. 45

dated. March 18, 1950. S. 0. 54 provides that every uncovenanted employee of the Company shalt retire from service on attaining the age of 60. yars. This S.O. 54 is bodily incorporated in Rule 5 of the Gratuity..Rules. Relying.'on S.O. 54 and the evidence 'recorded in the case, the High Court reached the conclusion that payment of gratuity was an implied condition of service of the pbintiff. Rule 6(a) provides that 'st\hject to the conditions prescribed in the :rules, every permanent uncovenanted employee of the Company will:

be eligi b1e for a retiring gratuiLy in the manner and to the extent for a retiring gratuity in the manner and to the ex\ent inentioned therein. Reiring gratuity becomes payable on retircmnt, w\lich

means termination of" service by reason. of any cause other than removal by discharge due to misconduct. On a combined reading of S.O. 54 an~ the Rule 5 of the Gratuity Rules the High Courtrightly concluded that payment of gratuity was a condition of. service but somehow the High Court . qualified it by saying that it was an

implied condition of service. It is weU-s-ettled by a catena of decisions, that Certified Standing Orders bind all those in employment at the time of service as well as thos.e who arc appointed thereafter., Agra Electricity Supply Co. Ltd. v. Sri Alladilz & Ors.2 Now upon a combined reading. of S.O. 54 along with Rule 5 and 6(a) of th~ Gratuity Rules, it becomes distinctly clar that payment-of gratuity was an express or statutory condition of service and. ro this limited extent the finding of the High Court has. to be ;. modifie9.

If payment of gratuity is thus shown to be a statutory or express condition of governing the relationship between the plaintiff and the company, it would be obligatory t.1pon the company to pay the gratuity on retirement of the_plaintiff. If the company declines or refuses to pay or discharge its statutory obligation, could the claim be enforce..d by a civil suit? The High "court was of the opinion

(1) [1984] lSCC 1

(2) (1970]1 S.C.R. 806.

-If

.!)

SUPREME.COURT REPORTS. [l984j 3 S.C; R ·

. that even though payment of gratuity was a C<}ndition of service. in ·

view of the provision contained in Rule 10, the same cannot be . claimed as.a matter of rig4t or its recovery canno.t be enforced by a civiJ suit. The High Court was constrained to observe that Rule 10 wh1ch 'confers absolute discretion on tl1e Company to pay the gratuity at its sweet .will is' unconscionable and incompatible with the modern notions or cpnditions whic;:h ought to -govern .the. relations -bet\veen employer and tha~ upon an i_ndustrial dispute being rais(!d,

the lndt!Strial Tribunal may be in a posjtio!i to award the gratuty as a matter or right even under tlre existing rules, but according to : High Couit, it cannot be enforced by a civil suit. In reaching this conclusion the High. Court overlooked the effect"' of certified Sta-nding OrderS' ad the inter-relation between the Retiring Gratuity Rules and S.O._ 54 ..

At this stage it would be appropriate to examine the effe<.(t of . a breach of condition of service which is either. statutory in 'characte_r

or has . the statutory flavour: When under 1946 Act, an obligation is cast on the employer to specifically and precisely lay down the conditions of s-ervice, See:' 13(2) subjects the employer to a peQalty if any act is d-one in contravention of the Standing Orders certified under the Act. It woJJld appear that such conditions of service pres .cribed in Standing Orders get incorporated in the contract of service of e.ach employee with his employer .. A facet of collective bargaining is that any' sett1einent. arrived at between the parties would be treated as incorporated in the contract of service of each employee governed by the settlement. Similarly certified Standing- Orders which statutotily prescrib.e the 9onditins o(service shall be deemed to be inco~:ported in the contract of employment of each . employee

with his emploYer.· As far as the incorporatori -of the results of . collective bargaining into the individual contract of. employmen~ .

-is concerned, the courts h ae --in . effect created a presumption

of more or less systematic translation of the results of collective bargaining. into individual contracts where these results . are in practice operative and effective in co~ trolling the ter"ms on. which: employment takes place : (Labour Law Text and Materials bJPaul.

Davies and Mark Freedland p. 233) 0 Kahn Freund describes. collective bargaining as -ctystalised custom to be imported into con tracts of employn1ent on t--he same basis. as trade custom (System of Industrial-Relations in• Great Britain p. 58-59)~ This w.9uld be all the moe true of ctrtified Standing .Orders governing conditions of seryic'e between workman and his employer. If the eployer -com mits a breach of the .contract ef mpJoyment; the -same' cn be en-

-y ....

.. J... ..

' . '

'I S.C. SA~K'AR v. TATA IRON AND STEEL CO. (Desai, J.) 337

:forced or remedied depending upon . the relief sought by a civil suit. . lf contract for personal service is sought to be specific<lly enforced

by a decree or civil court, the court will have to keep in view the provisions of Sc. 14 of the Specific Relief Act, 1963 which provid- . es that contract for personal service cannot be specifically enforced.

We are not concerned with the ex<oeptions to this rule such as the power of Industrial Tribunal to grant relief of reinstatement. We

are co.ncerned with the jurisdiction of civil court, The jurisdiction of civil court amongst others is determined by the nature Of relief claimed .. Now if the relief claimed is a money decree by enforcing

statutory conditions of service, the civil curt would certainly have jurisdiction to grant the relief. Plaintiff filed the suit alleging that he was entitled to paytrient of gratuity on completion Of service for th.e period prescribed. He alleged it and the High Court accepted

it as a condition of service. Its breach would give rise to a civil dispute and civil suit would be the only remedy. In the case of work~

man governed-by the Industria( Disputes Act, 1947, Sec. 33(c)(2)

may provide an additional. forum to recover monetar)' benefit. Jt n , is not suggsted that plaintiff was a workman governed by the Industrial Disputes Act. The High Court was, therefore, in error in holding that the remedy was only by way of an industrial dispute aJld not by a civil suit. In reaching this conclusion, th'e Court Higlt

clsed the door of justice to every employee though entitled to gr:atuity but would not be a workman within the meaning of the Industrial Disputes Act, 1947 to recover the same, except' where a pro~ secution an be successfutly launched for an offence . under Sec. 13(2) against the employer.

One more difficulty the High Court experienced in the way of .the plaintiff maintaining the suit and recovering the amount of gratuity was that under Rule 10 gratuity was payable at the absolute dispretion of Company and cannot be claimed as a matter of right ..

Undoubtedly, Rule 10 confers discretion on the c61pany to pay the

gratuity even if the same is earned by satisfying the condition3 subjectto wbich gratuity becomes payable.· Rule 10 provides that

ail retiring gratuities .grantyd tinder the rules shall be at the absolute discretion of the Companyirrespective of whether an e1n- . ployee has or has not performed all or any of the conditions set out in the rules and ilo employee howsoever otherwise eligiblefshidl be deemed to be entitled as of right to any payent under the rules.' Such absolute discretion is wholly destructive of the chatacter of gratuity as a retiral benefit. It is satisfactorily established and the High

338 . SVfRI;~T; COURT REPORLS

(1984] 3 S.C.R~ .

Curt has so rp.lp tb, at P~Yni~_pt of gratuity was a condition of" service lbeit implied cpndition or'srvice .which part .does not stand . scrutiny. 1946 Act was . amended speifically_ in 1956 by. Amend--

.ing Act 36 of 1956 by whi.cli power was c'onferred upon the Certifying Officer or appellate authority to adjudicate.upon the fairness or reasonableness of the' provisions of any standing orders. If is not. . clear. whether the Rule JO wich apppears to h; tVe been framed in the heyday or laissez faire has been recast, modified or alnended to. ·bring the same in conformity with the. modern notions of social justice and Part 1 V of the Cqnstitution. Assuming it is not done, the court while interpreting and enforcing the relevant rules wili have to l:iear in mind the oncept of gratuity. The fundamental principte'underlying gratuity is t, hat it is a retirement bnefit for long. · service as a provision for old age. Demands of social security and so.cial justice made it neoessaty to provide for payment of gratuity.

On the enactment of Payment of Gratuity Act, 1972 a statutory liability was cast on the employer to pay gratuity.

Pensob a'!id gratuity coupled with contributory Provident Fund are \Velhecognised retiral bnefits. '{hese retiral benefit&

arenowgoverned by various . statutes such as the Employees Provident Fund and Miscellaneous Provisions Act, 1952, the Paym.::nt of Gratuity Act, l972. These stati1tes were legislativf? responses tOthe developfng notions of fair nd lnnnane conditions of work, be· ing the promise Of Part IV of the Constitution. Art. 37. provides that 'the-provisions contained jil PartIVDirective PrinciP.les of State Policy, shall not be enforceable by. any court, but the principles therein laid down are nevertheless -fundamental in the governance of the country and it shall be the duty of the Stu(e to apply, these _ principles in aking laws." Art. 41 provides that 'the State shall •

. within the limits of its economic capacity and development, make

effective provision for securing the right to work, to education and to publi_c assistance in "pases of unemployment, old_ age,• sicknesS: and disablement, and in othet cases of undeserved want.' Art. 43 obligates the State to s'ecure, by suitable legislation to all workers, a living wage, conditions of work ensuring a decen.t standJ:lrd oflife anti full enjoyment of leisure ...... :·' The State discharg ed its obligation by enacting these laws, But much before the State

nacted relevant legislation, tlw trade unions either by e'?llective bargaining .. or by statutory adjudication acquired certain benefits, gratuity being one of them. Pension and gratuity are botli retiral benefits ensuring that the workman _who haS. spent his useful san

~ -

··~ ;

S C. SARKAR v. TATA lRO'N AND S.TE::L CO. {D.!; ai; 1.) 339.

of life in rendering service ancl who never got a living wage, which would h<we enabled him to save for a. rainy. day, should not 6e re~ . duced to destitution and p nury in his old age. As a return of long service he should be assured social security to some extent in the fonn. of eithe'r pension' gratu'ity or provident' fund whichever retiral ber; lefit is operative i"n the industrial .establishment. Jt must not be 'forgotten that it is not a grati.tious payment, it has to be earne-d by

l?ngand continuous service . .

<'in such social security measures be denuded of'its efficacy and enforcement by so interpreting t~~ relevant rules that the work~ man could be denied the same at the absolute discretion of the em~ ploycr notwithstanding the fact that lle or she has earned the sne by long continuou~ service? If Rule 10 is interpreted as has been done by the High Court, such wohld pe . the stark albeit unpalatable outcom~ ... It is therefore necessary to take a leaf out of history bear~ ing 0:1 the. question of ret ira! benefits like pension to which gratuity i$ equated. In B<trhanpur Tapti 'Mills Ltd .. v. B:trhanpur. Tupti Mills

Mazdoor Sangh(1) wherein thiS Court observed that:" a Scheme of.. gratuit.v and a ; cheme of pensio.o1 have much in tomr, non. Gratuity i~· a lump sum payment white pecision is a period payment of a stated sum." Undoubtedly both have to be earned .try long and

continli<; ms service. ·

For cnturies thcourts swung in favour of the view that pension is either a bounty or a gratitious payment for local service render ed. depnqing upon the sweet will or grace or'thc employer not claim~ able as a right and therefore, no right to pension c.ari be enforced. through court. This view held the field. and a suit to recover pension was held not maintainable. With the modern notions of social justice and social security, concept ofpens!on underwent a rad.i:.:al change and it is no, w wellsettled that pension is a right a'nd payment of it does not depend upon the discretion of the employer, nor can it be denie.d at the sweet will or fancy of the employer.. Deokinandan Prasad v. State of Bihar & Ors.,(2) State of Punjab & Anr. v. Iqbal 'Singhe) and D.S. Naka; a & Ors. v. Union of India(~). If pension which

Is the retiral benefit as a measure of social security can be recovered . . ( . .

(L) [1965] 1 LLJ 453.

(2) . (1971] Supp. SCR 634.

(3) ( 19761 3 SC'R 360. 0)

[1983] 2 SCR 165

 F

.,...

. A

340 . 'ruPREME COURT REPORTS [l984J3 S.C.R.

through civil suit, we seeno justitlcation in treating gratuity on a .

different footing. Pension a.nd gratuity in. tlie matter of retirat benefits and •for recovering the same must be put on par .

. ' -

The question then is : C::tn the court ignore Rule 10- 7 If gratuity is a retiral benefit :!ild can be earned as a mauer ofright on ;

fulfilling the conditions subJect to which it is.earned-;· any rule co;. feriqg absolute discretiol, l not testable 'on reason, justice or fairplay must be treated as utterly arbitrary and ureasonable and discarded.

Jf rules for payrn, ent of grattity became incorporated in the Standing Orders and thereby acquired the status of statutory condition of ser- _vice, iJ, n arbitrary denial ref.erable to whim, fancy or sweet will of the employer must be rejected as arbitrary. Sec. 4 oftbe 1946 Act which: . c<:mfers power on rhe Certifying Officer or <_ppellate authority to ad~

judicate upon 1-he fairness or reasonableness of the p(oVisiqns would .enabie this Court to reject that pa1t of Rule 10 conferring absolute discretion on the.employer to pay or not to pay the gratuity evt:, n D . if it is earned as utterly unreas6nable and unfair. It must be treated as.ineffective and unenforceable. It is well-settled that if the Certify.

ing Officer and the appellate authority under the 1946 Act while .certifying tj.1e Standing Orders has power to .adjudicate upon the fairness or reasonableness ofthe provisions -of any standing orders, E this C'..ourt in appeal under Ait. 136 shll have the power to do the same thing when especially it is called upon to enforce the unreason- -able and unfair pa'rt of the Standing Order. It therefore follows that part of Rule 10 which confers absolute discretion on the em~ ployer to , Pay gratuity~ even if it is' earned, at its absolute discretion

isine'ifective and unenforceable. This approach does not acquire . anY. precedent but. if one is needed the decision of this Court in Westem India Match Company Ltd. case clearly rules'to that effect.

In that Cilse, the company reliec;\ on a special agreement which was to some extent in _derogation of the provisions of the certified Stan- . ding Order:. The Court observed that to uphold such special agree~ rnent would. mean giving a go-by to the principle of three party particip, iltion, -in the settlement of the terms of employment, as represented by the certified Standing Orders and the[eforc, the inconstani part of special agreement is ineffective and unenforce. able. Tile claim to absolute discreti<; ln n, ot to pay gratuity even when it is earned is a hangover of the laissez faire days and utterly inconsistant with the modern notions of fair industrial relations and therefore, it must be rejected as ineffective and hence unenfor ....

able.

''t

...

~·- ' :'

' -

S.Q, SARIAR I!'; T/I, TA IRON AND STSEL CO~ (DeaiJ J.)

Viewed from a sliahtly different angle, our Constitution envisages a society governed by rule of law. Absolute discretion un- -Controlled by guidelines -., hich may permit denial of equality efore

Jaw is the anti-thesis of rule of law, Absolute discretion U()t judicially reviewable inhers.the_ pernicious tendency to be arbitrary .and is therefore violtive of Art. 14. Equality before law and absolute

<l.i9Cretion to grant or. deny benefit of the law are diametrically

.opposed to each other and cannot co-exist. Therefore; also the • .conferment of absolute discretio~ by Rule- 10 of the Gratuity Rules to give or deny t.he benefit of the rules cannot be upheJd .and must .be rejected as unenforceable.

The High Court reversed thedecree of the trial colirt on t1te .sole ground that Rule 10 confers an absolute discretion on the .

-respondent-company to pay or notto pay gratuity at its sweet will.

Qnce Rule 10 is out of the way, the judgment of the High Court .lJ.as to.be reserved. Accordingly, this appeal succeeds and will have

-19 be allowed.

I The trial court decreed the plaintiff's suit with ,-costs and. with interest at 6% per annum. Interest at 6<ya.per

nnum has become uttrly irrelevant in these days with devaluation . .()f the-rupee. further in our opinion, the company declined to meet

.it~ obligation on an utterly unreasonable . stand apd denied to' the •plaintifff or a period of a quarter of a century what the plaintiff was legitimately entitled with01.1t the slightest shadow of. doubt. Therefore, while allowing the appeal in order to compensate the loss s; ffered by the plaintiff who died before enjoying the fruits of his .Jecree, we direct that the interest shall be paid at 15% per aimum . ·

and full costs throughout.

Accord iogly, this appeal is allowed and the judgment and decree -of the High Court are set aside and the decree of the trial court is restored with thi~ modification that the interest shall be paid on the . principal amont of , Rs 14,04~ at 15% frm-1.7.1959 till payr:ne?t

and full costs throughout be paid to the plamtlff. The costs plamtiif .in this Court is quantifie~ at Rs 5,000. The payment shall be made

ithin a period of two months from today.

R.S.K~ •