Bch Electric Limited vs Pradeep Mehra

Allowing the appeal, the Court

HELD: 1.1 As on the day, when the respondent resigned from his service, that is on 01.06.2012, the relevant ceiling in Sub-Section (3) of Section 4 was at the level of “ten lakh rupees” and for an employee to be covered by the definition obtaining in Section 2(e) of the Act, there was no wage-bracket or ceiling. 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”. [Paras 16, 17][23-A-D]

1.2 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 what is made applicable by the Act, if better terms are available under any such arrangement with the employer, Section 4(5) stipulates that nothing in Section 4 shall affect the right of any employee to receive such better terms. Thus, when two choices are available, one under provisions of the Act and one under such arrangement with the employer and if the latter offers better terms, the employee cannot be denied right to receive those higher benefits. [Para 18][23-D-F]

2.1 The Trust Deed was executed “for the purpose of providing gratuities to the employees of the company under the Payment of Gratuity Act”. Clause 15 of the Trust Deed casts an obligation on the trustees to provide payment of gratuity upon termination of service or upon death or retirement of service of the Member “as provided in the Rules of Scheme” Rule 6(b) of the Rules clearly stipulates that notwithstanding the Scheme of the Company, if any member is covered by the Act, the amount of gratuity shall be calculated in accordance with the provisions of the Act. Similar thought is expressed in the Appendix to the Scheme which prescribes the rates at which the gratuity is to be paid. The Scheme thus divides the employees in two categories. First, the employees to whom the Act applies and with respect to whom the amount of gratuity shall be “calculated in accordance with the provisions of the Act and as per the rates prescribed by the Act”; the Second category of employees are those to whom the Act does not apply. According to said Rule 6(b) and Appendix, the calculation of amount of gratuity at the rates prescribed in the manner laid down in the Appendix, is to be done only in the case of employees in the Second category. [Para 20][23-H; 24-A-D]

2.2 The intent of the Trust Deed and the Scheme is thus clear that the governing principles 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. 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 apart from what is payable under the Act. [Para 21][24-E-H]

2.3 Rather than making available an alternative to the model and modalities of calculation of amount of gratuity, as placed on statute book by the provisions of the Act, the Trust Deed and the Scheme contemplates two kinds of employees. One, who are covered under the provisions of the Act and the other, who are not so covered. The historical background and the changes that the provisions of Section 2(e) and Section 4 have undergone show that not all employees were initially sought to be covered under the Act. Those, who were in wage-brackets greater than what was stipulated in Section 2(e) till it was finally amended to do away with the wage-bracket, were not covered by the Act. The Trust Deed and the Scheme sought to devise an apparatus and make provision for those who were otherwise not covered by the Act and for this reason contemplated two kinds of employees. 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. [Para 22] [25-A-D]

3. The High 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. 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 Act. [Para 23][25-G-H; 26-A-C]

4. The Authorities under the Act and the High Court erred in accepting the claim preferred by the respondent. The appellant was right in going by the provisions of the Act in the present matter and by the ceiling prescribed under Section 4(3) of the Act. Any mistakes on its part in making some extra payments to some of the other employees would not create a right in favour of others in the face of the stipulations in the Trust Deed and the Scheme.[Para 24][26-D-E]

Beed District Central Cooperative Bank Ltd. v. State of Maharashtra and Others (2006) 8 SCC 514 : [2006] 6 Suppl. SCR 895; Union Bank of India and Others v. C.G. Ajay Babu and Another (2018) 9 SCC 529 : [2018]

9 SCR 995 – referred to.