TMI Blog1984 (3) TMI 418X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 sevred a notice dated September 6, 1981 calling upon the respondent to pay the amount of gratuity being ₹ 14040-. 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 Jamshedpur. The respondent appeared and contested the suit interalia 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 of 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.' 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 and the plaintiff's suit was dismissed, directing the parties to bear their costs. Hence this appeal by the plaintiff by special leave. At the outset it is necessary to notice the relevant rules relied upon by the respondent in support of its submission that the gratuity cannot be claimed as a matter of right and the claim to gratuity cannot be enforced in the civil court. The Retiring Gratuity Rules came into force with effect from April 1, 1937 and at the relevant time, the rules as amended in 1948 were in operation. Rule 5 provides for retirement of every uncovenanted employee of the Company on attaining the age of 60 years subject to the right of the company to grant extension. This rule is a mere incorporation of S.O. 54 which provides for retirement on attaining the age of 60. Rules 6, 7 and 10 may be extracted: 6. (a) Subject to the conditions referred to in these rules, every permanent uncovenanted employee of the Company, whether paid on monthly, weekly or on daily basis, including those borne on the pay rolls of the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the plaintiff did not retire from service but he left the service of the Company 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 dispute, but is in fact conceded that the plaintiff did render continuous service from December 31, 1929 till August 31, 1959. On exact computation, the plaintiff rendered service for 29 years and 8 months. Rule 6(a) which prescribed the eligibility criterion for payment of gratuity provides that every permanent uncovenanted employee of the Company 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 every completed year of continuous service subject to a maximum of 20 months salary or wages in all provided that when an employee dies, retires or is discharged under Rule 11(2)(ii) and (iii) before he has served the Company for a continuous period of 15 years he shall be paid a gratuity at the rate therein mentioned. The expression 'retirement' has been defined in Rule 1 (g) to mean 'the termination of service by reason of any cause other than removal by discharge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditions of the plaintiff were governed by the Works Standing Orders. It is therefore necessary to determine the character of the Works Standing Orders Exh. C framed by the Company. This aspect was overlooked by the High Court with the consequence that the 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 Works Standing Orders framed by the Company ? Are they mere unenforceable rules or are 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 breach can be repaired or enforced by a civil suit ? The Parliament enacted the Industrial Employment (Standing Orders) Act, 1946 ('1946 Act' for short). The long title of the Act provides that it was an act to require employers in industrial establishments formally to define conditions of employment under them. The preamble of the Act provides that it is expedient to require employers in industrial establishments to define with sufficient precision the conditions of employ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Certified Standing Orders, under the 1946 Act evidenced by Certificate No. 45 dated March 18, 1950. S.O. 54 provides that every uncovenanted employee of the Company shall retire from service on attaining the age of 60 years. 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 plaintiff. Rule 6(a) provides that 'subject to the conditions prescribed in the rules, every permanent uncovenanted employee of the Company will be eligible for a retiring gratuity in the manner and to the extent for a retiring gratuity in the manner and to the extent mentioned therein. Retiring gratuity becomes payable on retirement, which 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 and the Rule 5 of the Gratuity Rules the High Court rightly 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 well-settled by a catena of decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties would be treated as incorporated in the contract of service of each employee governed by the settlement. Similarly certified Standing Orders which statutorily prescribe the conditions of service shall be deemed to be incorporated in the contract of employment of each employee with his employer. As far as the incorporation of the results of collective bargaining into the individual contract of employment is concerned, the courts have 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 controlling the terms on which employment takes place: (Labour Law Text and Materials by Paul Davies and Mark Freedland p. 233) O Kahn Freund describes collective bargaining as crystalised custom to be imported into contracts of employment on the same basis as trade custom (System of Industrial Relations in Great Britain p. 58-59). This would be all the more true of certified Standing Orders governing conditions of service between workman and his employer. If the employer commits a breach of the contract of employment, the same can be enforced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the conditions set out in the rules and no employee howsoever otherwise eligible shall be deemed to be entitled as of right to any payment under the rules.' Such absolute discretion is wholly destructive of the character of gratuity as a retiral benefit. It is satisfactorily established and the High Court has so ruled that payment of gratuity was a condition of service albeit implied condition of service which part does not stand scrutiny. 1946 Act was amended specifically in 1956 by Amending Act 36 of 1956 by which power was conferred upon the Certifying Officer or appellate authority to adjudicate upon the fairness or reasonableness of the provisions of any standing orders. It is not clear whether the Rule 10 which appears to have been framed in the heyday of laissez faire has been recast, modified or amended to bring the same in conformity with the modern notions of social justice and Part IV of the Constitution. Assuming it is not done, the court while interpreting and enforcing the relevant rules will have to bear in mind the concept of gratuity. The fundamental principle underlying gratuity is that it is a retirement benefit for long service as provision for old age. Dema ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eting the relevant rules that the workman could be denied the same at the absolute discretion of the employer notwithstanding the fact that he or she has earned the same by long continuous service ? If Rule 10 is interpreted as has been done by the High Court, such would be the stark albeit unpalatable outcome. It is therefore necessary to take a leaf out of history bearing on the question of retiral benefits like pension to which gratuity is equated. In Burhanpur Tapti Mills Ltd. v. Burhanpur Tapti Mills Mazdoor Sangh wherein this Court observed that : a Scheme of gratuity and a scheme of pension have much in common. Gratuity is a lump sum payment while pension is a period payment of a stated sum. Undoubtedly both have to be earned by long and continuous service. For centuries the courts swung in favour of the view that pension is either a bounty or a gratuitous payment for local service rendered depending upon the sweet will or grace of the employer not claimable as a right and therefore, no right to pension can 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 sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 faire days and utterly inconsistent with the modern notions of fair industrial relations and therefore, it must be rejected as ineffective and hence unenforceable. 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 anti-thesis of 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 diame ..... X X X X Extracts X X X X X X X X Extracts X X X X
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