Date and Time: Thursday 9 December 2021 5:19:00 PM IST

Job Number: 159526776

Documents (3)

1. Leave Facilities
Client/Matter: -None-
2. Gratuity versus Retrenchment Compensation
Client/Matter: -None-
3. Pension and Gratuity
Client/Matter: -None-

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 Leave Facilities
E M Rao: Industrial Jurisprudence - A Critical Commentary, 2e 2015
E M RAO

E M Rao: Industrial Jurisprudence - A Critical Commentary, 2e 2015 > E M Rao: Industrial Jurisprudence -
A Critical Commentary, 2e 2015 > CHAPTER 2 Employment Relationship > CONDITIONS OF WORK—
BENEFITS AND FACILITIES

CONDITIONS OF WORK—BENEFITS AND FACILITIES

Leave Facilities

In Alembic Chemical Works, Gajendragadkar J., rejected the contention that the Tribunal discriminated
between operatives and clerical staff of the factory by providing for differential quantum of leave, and
observed that the practice prevailing in comparable concerns and the trend of awards both seem to show
that a distinction was generally made between the two categories of employees, and that since the said
distinction was perfectly justifiable no question of discrimination could arise.5 In Pfizer, the learned judge
held that the holidays declared under the Negotiable Instruments Act, 1881 are usually applicable to
government institutions envisaged by the Act itself; that the commercial establishments and factories do
not usually adopt these holidays and so, an employer is not bound to grant holidays as sanctioned by the
Negotiable Instruments Act.6 In May & Baker, Wanchoo J., quashed that part of the award of Tribunal,
which permitted the accumulation of privilege leave up to a maximum period of 12 weeks, on the ground
that the said direction was contrary to s. 22 of DSEA, which provided for accumulation up to a maximum
period of 30 days only.7 In Hindustan Times, the award of the Tribunal granting sick leave to the
employees was challenged on the ground that ESIA provides for sickness benefit. Rejecting the
contention, Das Gupta, J., held that the benefit that the workmen get under the ESIA would not affect the
question of sickness leave being provided for the workmen. The Act does not provide for any leave to the
workmen on the ground of sickness. In providing for periodical payments to an insured worker in case of
sickness (sickness benefit) or for medical treatment or attendance to him or the members of his family, the
legislature did not intend to substitute any of these benefits for the workmen’s right to get leave on full
pay on the ground of sickness. In the same case, the learned judge quashed that portion of the award
which provided for 15 days of sickness leave contrary to the maximum of 12 days provided u/ s. 22 of
DSEA, and ordered that sickness leave should be limited to 12 days with no accumulation.8 In Dalmia
Cement, Das Gupta J., held that where there had been a long, continued and uninterrupted practice from
1948 for the encashment of privilege leave, the same had ripened into a condition of service and, when the
company refused a few such applications in 1957, it amounted to a departure from the past practice
without lawful reasons.9

5 Alembic Chemical Works Ltd v Workmen, AIR 1961 SC 647 [LNIND 1960 SC 348], per Gajendragadkar J.

6 Pfizer Private Ltd v Workmen, AIR 1963 SC 1103 [LNIND 1962 SC 400], per Gajendragadkar J.

7 Mgmt of May & Baker (India) Ltd v Workmen, AIR 1967 SC 678 [LNIND 1961 SC 18], per Wanchoo J.

8 Hindustan Times Ltd v Workmen, AIR 1963 SC 1332 [LNIND 1962 SC 451], per Das Gupta J.

9 Dalmia Cement (Bharat) Ltd v Workmen, AIR 1967 SC 209 [LNIND 1960 SC 82], per Das Gupta J.
 Page 2 of 2
Leave Facilities

End of Document
 Gratuity versus Retrenchment Compensation
E M Rao: Industrial Jurisprudence - A Critical Commentary, 2e 2015
E M RAO

E M Rao: Industrial Jurisprudence - A Critical Commentary, 2e 2015 > E M Rao: Industrial Jurisprudence -
A Critical Commentary, 2e 2015 > CHAPTER 2 Employment Relationship > CONDITIONS OF WORK—
BENEFITS AND FACILITIES

CONDITIONS OF WORK—BENEFITS AND FACILITIES

Gratuity versus Retrenchment Compensation

While considering the question of gratuity, the Tribunal has to look at the profits made without
considering the provision for taxation in the shape of income-tax and for reserves. The provision for
income-tax and for reserves must take second place as compared to provision for wage-structure and
gratuity, which stands on the same footing as provident fund which is also a retiral benefit. Payment
towards provident fund and gratuity is expense to be met by an employer like any other expenses
including wages and if the financial position shows that the burden of payment of gratuity and provident
fund can be met without undue strain on the financial position of the employer, that burden must be borne
by the employer. While on the one hand casting of this burden reduces the margin of profits, on the other
hand it will result in the reduction of taxation in the shape of income-tax.13 In May and Baker, the facts
disclosed that the gratuity scheme framed by the company required the employees to put in a minimum of
five years’ service before being entitled to gratuity. The Tribunal awarded gratuity to a workman who was
retrenched before completing five years’ service. Quashing the award, Wanchoo J., held that the mere fact
that the company had voluntarily paid gratuity to a few other workers with less than five years of service
was not a good ground for awarding gratuity in view of the shortfall in the minimum qualifying period.14
In Indian Hume Pipe, the issue related to the distinction between gratuity and retrenchment compensation.
Justice Gajendragadkar (for self, Sinha CJI. and Wanchoo J.), observed:

Gratuity is a kind of retirement benefit like the provident fund or pension. ...Gratuity paid to workmen is intended to help them after
retirement, whether the retirement is the result of the rules of superannuation or of physical disability. The general principle underlying
such gratuity schemes is that by their length of service workmen are entitled to claim a certain amount as a retiral benefit. On the other
hand retrenchment compensation is not a retirement benefit at all. ...The object of retrenchment compensation is to give partial
protection to the retrenched employee and his family to enable them to tide over the hard period of unemployment. Thus the concept on
which grant of retrenchment compensation is based is essentially different from the concept on which gratuity is founded. ...the two
schemes are not at all irreconcilable nor even inconsistent; they really complement each other; and so, on considerations of social justice
there is no reason why both the claims should not be treated as legitimate. The fact that they appear to constitute a double benefit does
not affect their validity.15

In Brahmachari Research Institute the proviso to s. 25J of IDA, which reads, ‘nothing contained in the
Act shall have effect to derogate from any right which a workman has under any award for the time being
in operation or any contract with the employer’, fell for interpretation. Justice Gajendragadkar held that
what it meant was that if by any award or contract a workman is entitled to something more as
retrenchment compensation than is provided by s. 25F, the workman would be entitled to get the enhanced
payment and that s. 25F would not derogate from that right of the workman, i.e., would not reduce the
compensation provided under the award or contract to the level provided u/ s. 25F .16 In Garment
Cleaning, the learned judge, while recognising that gratuity is earned by an employee for long and
meritorious service, held that:
 Page 2 of 3
Gratuity versus Retrenchment Compensation

…it was not as if that in all cases where the service of an employee is terminated for misconduct, the employee would be disentitled to
gratuity; and that where the dismissal was due a misconduct involving financial loss to the employer, the employee should be called
upon to compensate for the loss and that, after the compensation is paid to the employer, if any balance from the gratuity claimable by
the employee remains that should be paid to him.17

Dilating upon ‘retrenchment compensation’, ‘gratuity’, and ‘provident fund’, Hidayatullah J., observed
that compensation for retrenchment is solatium for premature termination of employment. Contribution to
the provident fund is designed to induce thrift so that the employee may lay aside from his present
earnings a portion for a rainy day or for his old age. Gratuity is a retiral benefit of a very different kind,
because it is earned by giving service. The existence of any one of the three schemes, therefore, does not
obviously overlap any of the other two. They can all exist together, provided the financial position
justifies such a course.18Where the APSEA 1988 sought to invent and import a new term by the name
‘service compensation’ in s. 47(3) thereof, the Supreme Court observed that it was nothing but ‘gratuity’
dressed up as ‘service compensation’, and struck it down on the ground that the minimum qualifying
service prescribed was one year (as against five years in PGA) and was thus repugnant to the Central
Act.19 In Guru Jambheswar University, the SC held that what applies to gratuity does not apply to
retrenchment compensation, and while calculating retrenchment compensation for monthly-rated
workmen, there is no need to take the number of working days as 26, unlike PGA, in view of the fact that
the expression “average pay” has been defined in s. 2(aaa) of IDA clearly.20

In Bharatkhand Textile, the issue urged was that, in the view of the provisions of EPFA (later renamed as
Employees’ Provident Fund and miscellaneous Provisions Act) which provided for retirement benefit, it
was not open to the Tribunal to frame another scheme in the form of gratuity. Repelling the contention,
Gajendragadkar J., held that, while 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; it would not be open to an employer to contend that
the Act excludes the jurisdiction of industrial courts to frame an additional scheme.21 In DCM, the facts
disclosed that after the dispute was referred to the Tribunal, a settlement was reached between the
management and unions, which inter alia provided that ‘the workmen agree not to claim any further
increase in wages, basic or dearness, or make any other demand involving financial burdens on the
company either on their initiative or as a result of any award till such time as the working of the mills
results in profits’. The Tribunal awarded gratuity without making any reference to the terms of the said
settlement. Quashing the award, Shah J., held that the terms of the settlement clearly showed that if it be
found that the company had acquired financial stability, it would be liable to pay gratuity to the workmen.
The learned judge, however, observed that the Tribunal was competent to determine the gratuity payable
to the workmen.22

In Motipur Zamindari, it was held that the workmen should not be wholly deprived of the benefit earned
by long and meritorious service, even though at the end of such service he may be found guilty of
misconduct entailing his dismissal, and therefore the condition in a gratuity scheme that no gratuity should
be payable to a workman dismissed ‘for misconduct involving moral turpitude’ should be held unjustified.
The court accordingly modified the condition and directed that while paying gratuity to a workman who
was dismissed for misconduct only such amount should be deducted from the gratuity due to him in
respect of which the employer may have suffered loss by the misconduct of the employee.23However,
these divergent judicial opinions have been resolved legislatively by s. 4(6) of the PGA, which provides
for forfeiture of gratuity either in part or in full in the event of termination of service for any loss caused
to the employer or if such termination is for riotous or disorderly conduct or for any act involving moral
turpitude.
 Page 3 of 3
Gratuity versus Retrenchment Compensation

13 Gramophone Company Ltd v Its Workmen, (1964) II LLJ 131 (SC), per Wanchoo J.

14 Mgmt of M/s May and Baker (India) Ltd v Workmen, AIR 1967 SC 678 [LNIND 1961 SC 18], per Wanchoo J.

15 Indian Hume Pipe Co Ltd v Workmen, AIR 1960 SC 251 [LNIND 1959 SC 185], per Gajendragadkar J.

16 Brahmachari Research Institute v Workmen, AIR 1960 SC 257 [LNIND 1959 SC 184], per Gajendragadkar J.

17 Garment Cleaning Works v Workmen, AIR 1962 SC 673 [LNIND 1961 SC 147], per Gajendragadkar J.

18 Burhanpur Tapti Mills v BT Mills Mazdoor Sangh, AIR 1965 SC 839 [LNIND 1964 SC 304], per Hidayatullah J.

19 GKSH & TE Workers Union v Srinivasa Resorts Ltd, AIR 2009 SC 2337 [LNIND 2009 SC 489], per Sirupurkar, J.

20 Guru Jambheswar University v Dharam Pal, AIR 2007 SC 1040 [LNIND 2007 SC 65], per Mathur, J.

21 Bharatkhand Textile Mfg Co Ltd v TLA, AIR 1960 SC 833 [LNIND 1960 SC 81], per Gajendragadkar J.

22 Delhi Cloth and General Mill Co Ltd v Workmen, AIR 1970 SC 919 [LNIND 1968 SC 298], per Shah J.

23 Motipur Zamindari (P) Ltd v Workmen, (1965) II LLJ 139 (SC), per Gajendragadkar J.

End of Document
 Pension and Gratuity
E M Rao: Industrial Jurisprudence - A Critical Commentary, 2e 2015
E M RAO

E M Rao: Industrial Jurisprudence - A Critical Commentary, 2e 2015 > E M Rao: Industrial Jurisprudence -
A Critical Commentary, 2e 2015 > CHAPTER 2 Employment Relationship > CONDITIONS OF WORK—
BENEFITS AND FACILITIES

CONDITIONS OF WORK—BENEFITS AND FACILITIES

Pension and Gratuity

In Allahabad Bank, the retired employees filed a writ petition against the bank on its refusal to pay
‘gratuity’ in addition to pension. The genesis of the problem lies in the fact that, under various awards like
the Sastri Award, Desai Award, etc, the bank employees had earlier given an option to receive either
‘pension’ or ‘gratuity’ and not both. The bank contended that the employees were entitled to receive only
one of the two benefits and not both in terms of the option exercised by them earlier. Rejecting the
contention of the bank, Sudershan Reddy, J. (for self and Lodha J.), held that:

Pensionary benefits may include payment of pension as well as gratuity. One does not exclude the other. Only in cases where the
gratuity component in such pension schemes is in better terms in comparison to that of what an employee may get under the Payment of
Gratuity Act the government may grant an exemption and relieve the employer from the statutory obligation of payment of gratuity.. ..
The Bank having failed to obtain exemption from the operation of the provisions of the Act cannot be permitted to raise this plea. No
establishment can decide for itself that employees in such establishments were in receipt of gratuity or pensionary benefits not less
favourable than the benefits conferred under the Act. Sub-section (5) of Section 4 protects the rights of an employee to receive better
terms of gratuity from its employer under any Award or agreement or contract as the case may be. Admittedly the Scheme under which
the employees of the Bank received the pension was in lieu of gratuity. There is no question of comparing the said Scheme and arrive at
any conclusion that what they have received was much better in terms than the benefits conferred under the Act. Reliance upon sub-
section (5) of Section 4 is therefore unsustainable.. .. There is no material placed before us that the employees while opting for the
pension scheme at the time of their superannuation/retirement either expressly or impliedly waived their statutory right to claim
payment of gratuity under the provisions of the Act. In the circumstances we find no merit in the submission made by the learned
counsel for the appellant in this regard. For the aforesaid reasons we find no merit in the appeal.25

25 Allahabad Bank v AB Retired Employees’ Assn., 2009 AIR SCW 7667, per Sudershan Reddy J.

End of Document