TMI Blog2020 (5) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... 4(5) of the Act to submit that the employees are entitled to some greater advantage than what is available under the Act. As stated earlier, for Section 4(5) to apply there must be two alternatives, one in terms of the Act and one as per the award or agreement or contract with the employer - The Scheme does not therefore offer to the employees covered by the Act any other alternative apart from what is payable under the Act. The Trust Deed and the Scheme were executed and formulated in the year 1979 when the wage-bracket was a definite parameter for an employee to be covered under the Act. The intent of the Trust Deed and the Scheme has to be understood in that perspective. The idea was not to afford to the employees who are covered by the provisions of the Act, a package better than what was made available by the Act, but it was to extend similar benefit to those who would not be covered by the Act. In Beed District Central Cooperative Bank Ltd. [2006 (6) TMI 507 - SUPREME COURT] , the gratuity scheme provided by the employer had better rate for computing gratuity but the ceiling limit was lower; whereas the entitlement under the provisions of the Act was at a lesser rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (C) No.6307 of 2019] - - - Dated:- 29-4-2020 - Civil Appeal No. 2380 OF 2020 [Arising Out of Special Leave Petition (C) No.6322 of 2019] And Civil Appeal No. 2381 of 2020 [Arising Out of Special Leave Petition (C) No.6164 of 2019] Uday Umesh Lalit And Sanjiv Khanna JJ. For the Petitioner(s) : Mr. Ashiesh Kumar, AOR For the Respondent(s) : Mr. Shekhar Kumar, AOR JUDGMENT UDAY UMESH LALIT, J. 1. Leave granted. 2. This appeal challenges the judgment and order dated 12.2.2019 passed by the High Court The High Court of Delhi at New Delhi dismissing Letters Patent Appeal No.97 of 2019 and thereby affirming the decision of the Single Judge of the High Court in Writ Petition No.10318 of 2017. 3. By Trust Deed executed on 19.03.1979 between the appellant, a company registered under the Indian Companies Act, 1956 on one hand and three trustees on the other, an Approved Gratuity Fund was constituted for the purpose of providing Gratuities to the employees of the Company under the Payment of Gratuity Act, 1972 (hereinafter referred to as the Act ) and the Gratuity Scheme of the Company . Clauses 4, 11 and 15(a) of the Trust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereunder in this Scheme: - (a) The amount of Gratuity payable to the beneficiary shall be calculated in the manner provided in the Company s Gratuity Scheme. (b) Notwithstanding the provision herein contained, if any member is covered by the provisions of the Payment of Gratuity Act 1972, the amount of gratuity shall be calculated in accordance with the provisions of that Act. 3.3 The Appendix to the Scheme prescribes the rates at which gratuity will be payable as under:- Gratuity will be payable to the Employees to whom the Payment of Gratuity Act, 1972 applies as per the rates prescribed by the said Act. Gratuity will be payable to the other employee of the company at the following rates:- (a) On the death or permanent total physical disablement, while in the service of the Company, or retirement at the age of 55 years or if retained by the Company after 55 years, then at the time of separation from the Company: 15 days basic salary for each completed year of service subject to maximum of 20 months basis pay, payable to the employees or payable to his heirs, executors or nominee in case of death of the employee. (b) On termination of Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 7 of the Act. It was submitted that the emolument sheets issued to the respondent from time to time indicated that a sum of 4.81% of his basic salary had been adjusted towards gratuity; in the year 2007 the respondent was promoted to the post of Chief Executive Officer and his emoluments had almost doubled; that his emolument sheet dated 03.06.2011 acknowledged that the amount set apart for contribution towards gratuity for that year alone was ₹ 11,54,400/-, and that various other employees had actually received gratuities without any limit. It was thus prayed that the respondent was entitled to the balance sum of ₹ 1,73,75,000/- (₹ 1,83,75,000/- less ₹ 10,00,000/- which was received) towards gratuity along with interest at the rate of 18% per annum. 7. In its reply to the claim petition, the appellant relied upon Clause 15 of the Trust Deed and Rule 6(b) of the Rules. It was submitted :- (iv) From bare reading of the above Clause 15 read with Rule 6(b), it is apparent that the employees of the respondent No.1 Company, if covered by the provisions of the Gratuity Act were entitled for gratuity in accordance with the provisions of the Gratuity A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and other co-employees, towards the gratuity and showing the same as cost to company in emoluments sheet despite the fact the that the said allocation had already crossed the gratuity limits provided under the Act, leaves no room for doubt that the respondents had intended to make more liberal and beneficial gratuity scheme by abandoning the cap on gratuity and minimum qualifying service which otherwise has been provided under the Act. 8.2 In the premises, it was held:- The applicant is therefore entitled to gratuity under the scheme without any cap. The gratuity is to be calculated as per the formula of the Act as the applicant is admittedly covered by the Act, as provided in the scheme of the management, but the gratuity has to be paid without any ceiling. 8.3 The computation as regards the amount payable towards gratuity was as under:- The last drawn salary of the applicant is therefore taken as ₹ 24,50,000/-. The gratuity payable under the scheme is therefore determined as under:- 24,50,000 X 15 X 13/26 = 1,83,75,000/- Since there is no cap on the gratuity under the scheme of the employer, same is more beneficial to the applicant and h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clauses in the Appendix. He, however, submits that the rules for computing the gratuity of other employees are now redundant in the light of the Payment of Gratuity (Amendment) Act, 1994, which extended the applicability of the PG Act to all the employees engaged in a company. Resultantly, all the petitioner s employees, including the respondent are now covered under the PG Act and, as per the express provisions of the petitioner s gratuity scheme, their gratuity has to be calculated as per the statutorily prescribed rate and ceiling limit under Sections 4(2) and 4(3) respectively. On the other hand the submission of the respondent on the point was noted as under:- the respondent s claim for gratuity in excess of the ceiling limit prescribed under Section 4(3), is not in conflict with the provisions of the PG Act. In fact, contrary to what has been contended by the petitioner, Section 4(5) categorically protects the respondent s right to receive gratuity under better terms than those prescribed under the said Act. 10.1. While considering these submissions, it was observed:- 24. In my considered opinion, there is nothing in the Trust Deed dated 19.03 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e first sense, the phrase as per laws can be read to qualify the word eligible so that Clause 11 suggests that the respondent shall be entitled to receive gratuity on his meeting the eligibility criteria laid down by the laws in force. For obvious reasons, this particular interpretation of the clause cannot in any way be read to impose a limit on the amount of gratuity payable to the respondent. In the second sense, which is the interpretation that has been relied upon by the learned counsel for the petitioner, Clause 11 can be read to suggest that the respondent shall be entitled to gratuity as per laws on his becoming eligible. In this sense also, the phrase as per laws is at best a broad stipulation that takes within its sweep not only the provisions of Sections 4(2) and 4(3), but also of Section 4(5). Like Rule 6(b) under the Trust Deed dated 19.03.1979, the interpretation of clause 11 relied upon by Mr. Sethi has such a broad implication that it cannot be read so selectively to apply the ceiling limit under Section 4(3) to the amount of gratuity that can be claimed by the respondent. Thus, looked at from every possible angle, there is nothing in the documents relied up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) PGA. By opting for the Appellant s Scheme, the Respondent did not lose the benefit of Section 4(2) PGA. 20. The Court finds that not all elements of the PGA have been adopted in the Gratuity Scheme of the Appellant. While the rate stipulated under Section 4(2) PGA has been adopted, the ceiling limit under Section 4(3) of the PGA has not. As noted both by the CA and the learned Single Judge, the Appellant itself calculated the gratuity not just in the case of the Respondent but in the cases of ten other employees. The Chairman and Managing Director (CMD) of the Appellant would decide the emoluments of the Respondent and issue EES which invariably contained an entry towards gratuity, which amount was computed at the rate of 4.81% of the Respondent s annual basic salary. The EEs were issued under the signature of the CMD before being handed over to the Respondent in original, thereby becoming a part of the contract between the Appellant and the Respondent. In 2007-08 the gratuity amount was ₹ 6,34,920/- which was nearly twice the then ceiling limit of ₹ 3.5 lakhs under the PGA. In 2011-12 it was ₹ 11,54,400/- which was higher than the cei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15. Before we deal with the rival submissions, the effect of various amendments making changes in Section 2(e), Section 4(2) and Section 4(3) of the Act are required to be considered. The Act was enacted in the year 1972 to provide for a scheme for the payment of gratuity to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shop or other establishments and for matters connected there with and incidental thereto . The expression employee as originally defined in Section 2(e) was as under:- (e) employee means any person (other than an apprentice) employed on wages, not exceeding one thousand rupees per mensem, in any establishment, factory, mine, oilfield, plantation, port, railway company or shop, to do any skilled, semi-skilled, or unskilled, manual, supervisory, technical or clerical work, whether the terms of such employment are express or implied, but does not include any such person who is employed in a managerial or administrative capacity, or who holds a civil post under the Central Government or a State Government, or who is subject to the Air Force Act, 1950, the Army Act, 1950, or the Navy Act, 1957. Explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the expression one thousand six hundred rupees per mensem , the expression that amount was substituted at two places in the Explanation to Section 2(e). Said amendment Act also inserted following explanation after Second Proviso to Sub-Section (2) of Section 4. Explanation.- In the case of a monthly rated employee, the fifteen days wages shall be calculated by dividing the monthly rate of wages last drawn by him by twenty-six and multiplying the quotient by fifteen. Sub-Section (3) of Section 4 was also amended and instead of twenty months wages the expression fifty thousand rupees was substituted. 15.3 In exercise of power conferred upon it, the Central Government by Notification No. S.O. 863 (E), dated 26.11.1992 raised the higher amount of wages referred to in Section 2(e) of the Act to three thousand and five hundred rupees . 15.4 Act 35 of 1994 made further amendments and expression not exceeding two thousand five hundred per mensem, or such higher amount as the Central Government may, having regard to the general level of wages, by notification specify occurring in Section 2(e) was omitted. The explanation to Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent or resignation, or (c) on his death or disablement due to accident or disease: Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement: Provided further that in the case of death of the employee, gratuity payable to him shall be paid to his nominee or, if no nomination has been made, to his heirs, and where any such nominees or heirs is a minor, the share of such minor, shall be deposited with the controlling authority who shall invest the same for the benefit of such minor in such bank or other financial institution, as may be prescribed, until such minor attains majority. Explanation. - For the purposes of this section, disablement means such disablement as incapacitates an employee for the work which he, was capable of performing before the accident or disease resulting in such disablement. (2) For every completed year of service or part thereof in excess of six months, the employer shall pay gratuity to an employee at the rate of fifteen days wages based on the rate of wages last drawn by the employee concerned: Provided th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efinition obtaining in Section 2(e) of the Act, there was no wage-bracket or ceiling. 17. In terms of Section 4(1) of the Act gratuity shall be payable to an employee in the eventualities referred to therein if he had rendered continuous service for not less than five years. Explanation to Section 4(2) inter alia states that the gratuity shall be payable at the rate of 15 days wages for every completed year of service or part thereof in excess of six months. Explanation to Section 4(2) lays down how the gratuity is to be calculated, while Section 4(3) stipulates that the amount of gratuity payable to an employee shall not exceed certain limit and thus puts a cap on the amount payable towards gratuity. Section 4(5) then states that nothing in said Section shall affect the right of an employee to receive better terms of gratuity under any award or agreement or contract with the employer . 18. For Section 4(5) of the Act, to get attracted, there must be better terms of gratuity available and extendable to an employee under any award or agreement or contract with the employer as against what has been provided for under and in terms of the Act. In other words, as against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inciples as regards the amount to be calculated and the rates to be applied have to be in accordance with the provisions of the Act, if an employee is covered by the provisions of the Act. If the amount is to be so calculated according to the provisions of the Act, in case of employees covered by the provisions of the Act, there is no other alternative which is offered by the Company or which is part of any award or agreement or contract entered into between the employer and employees. Thus, no reliance could be placed on Section 4(5) of the Act to submit that the employees are entitled to some greater advantage than what is available under the Act. As stated earlier, for Section 4(5) to apply there must be two alternatives, one in terms of the Act and one as per the award or agreement or contract with the employer. The Scheme on which heavy reliance was placed to submit that it afforded and made available better terms of gratuity itself emphasizes that in case of the employees who are covered under the Act, the amount payable as gratuity shall be in terms of the provisions of the Act. The Scheme does not therefore offer to the employees covered by the Act any other alternative apa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court failed to consider the effect and impact of Rule 6(b) of the scheme. The Single Judge did refer to said Rule 6(b) but found that the Rule was so broadly drafted that it could not be construed to contemplate the ceiling limit under Section 4(3) of the Act. In our view, the true import of Rule 6(b) which gets further emphasized by stipulation in the Appendix to the Scheme was lost sight of by the authorities under the Act and by the High Court. If an employee is covered by the provisions of the Act, according to said Rule 6(b), the amount of gratuity has to be calculated in accordance with the provisions of the Act. The Appendix to the Scheme reiterates the same principle. Thus, in case of such an employee the gratuity has to be calculated in accordance with the provisions of the Act and while so calculating, not only the basic principle available in Section 4(2) as to how the gratuity is to be calculated must be applied but also the ceiling which is part of Section 4(3) must also apply. The rates and the modalities of calculations of gratuity as available under the Scheme of the Rules are to apply only to those employees who are not covered by the provisions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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