HIGH COURT OF JUDICATURE AT ALLAHABAD AFR Chief Justice's Court Case :- SPECIAL APPEAL DEFECTIVE No. - 291 of 2015 Appellant :- U.P. State Sugar Corporation Respondent :- Smt. Sharada Devi And 4 Others Counsel for Appellant :- Shakti Swarup Nigam Counsel for Respondent :- C.K. Chaturvedi Hon'ble Dr. Dhananjaya Yeshwant Chandrachud,Chief Justice Hon'ble Manoj Kumar Gupta,J.
The special appeal has arisen from a judgment and order of a learned Single Judge dated 6 February 2015 allowing a writ petition filed by the first and second respondents. The writ petition was filed by the first and second respondents for the payment of an amount of Rs.2,45,360/- towards the balance of dues on account of gratuity payable in respect of the services of a deceased employee.
Mani Ram was initially engaged as a Welfare Officer Grade-III on 3 June 1973 by Mahavir Sugar Mill Pvt. Ltd. The Mill was taken over under the Uttar Pradesh Sugar Undertakings (Acquisition) Act, 19711. After acquisition, the services of the employee were transferred under Section 16 of the Acquisition Act on the same terms and conditions on which he was engaged by the private mill which was acquired. Mani Ram retired on attaining the age of 60 years on 29 February 2008 and was paid an amount of Rs.3.50 lacs as gratuity under the Payment of Gratuity Act, 19722. He filed a writ petition before this Court seeking the benefit of the payment of gratuity under the Uttar Pradesh Factories Welfare Officers' Rules, 19553. Under Section 4(3) of the Gratuity Act, there was a ceiling of Rs.3.50 lacs applicable, at the material time, on the gratuity admissible. Under Rule 8-A (3) of the Factories Welfare Rules, there was a ceiling of twenty months' pay. The basis of the claim of the employee was that under the Factories Welfare Rules, he was entitled to a total amount of Rs.5,95,360/- towards gratuity. After giving credit for the amount of Rs.3.50 lacs which had already been disbursed to him, a balance of Rs.2,45,360/- lacs was claimed as due and payable.
The writ petition was disposed of by this Court by an order dated 17 May 2011 by directing the General Manager to consider and pass orders on the representation submitted by the employee. The General Manager passed an order on 18 August 2011 holding that Shahganj Sugar Mill, in which the employee had been engaged, had been sold in a slump sale prior to the date of the order of this Court on 17 May 2011 and hence, the liability for the payment of gratuity could not be foisted on the appellant. A writ petition was filed in order to challenge the order passed by the General Manager on 18 August 2011 and for a mandamus to the appellant to pay the balance of the dues on account of gratuity in the amount of Rs.2,45,360/- together with interest from the date of retirement.
Before the learned Single Judge, pleadings were completed by the parties. The contention of the appellant was that under Clause 2(6) of the sale agreement between the appellant and a purchaser, all contingent liabilities stood transferred by the appellant to the purchaser who alone would be responsible. According to the appellant, the employee had been rightly paid the amount of gratuity admissible under the U.P. State Sugar Corporation Ltd. General Service Rules, 19884 and a claim for the payment of the balance of Rs.2.45 lacs under the Factories Welfare Rules was not maintainable.
The learned Single Judge allowed the writ petition filed by the employee holding that the unit was sold by the appellant to Wev Industries Pvt. Ltd. on 1 November 2010, whereas the employee had retired after 35 years service rendered between January 1973 and February 2008. Since on the date of retirement, the employee was in the employment of the appellant, the learned Single Judge held that the claim for the discharge of liability on account of gratuity could not be denied. The order of the General Manager dated 18 August 2011 was quashed and a direction was issued to pay gratuity to the employee, while allowing the writ petition. The employee has after the filing of the writ petition died. The first and second respondents who are his legal heirs have been brought on the record. The battle in law continues.
The submission which has been urged on behalf of the appellant is that:
(i) the services of the employee were transferred to the appellant under Section 16 of the Acquisition Act;
(ii) the General Service Rules applicable to the employees of the appellant govern the conditions of service and Rule 29 of the General Service Rules stipulates that employees covered by the Gratuity Act would be paid gratuity in accordance with the provisions of that Act;
(iii) the employee was governed by the General Service Rules which specifically incorporate the provisions of the Gratuity Act and hence gratuity only under that enactment was admissible;
(iv) the provisions of the Factories Welfare Rules would have no application and the employee after having received gratuity under the Gratuity Act, sought to espouse his cause for the payment of enhanced gratuity under the Factories Welfare Rules, which was not permissible.
On the other hand, it has been urged on behalf of the first and second respondents, that:
(i) Section 4(5) of the Gratuity Act specifically provides that nothing contained in that Section shall affect the right of an employee to receive better terms of gratuity under any award, agreement or contract with the employer;
(ii) the employee was recruited admittedly in 1973 and on the date of acquisition, his services were governed by the Factories Welfare Rules;
(iii) Rule 8-A of the Factories Welfare Rules provides for the computation of gratuity and sub-rule (3) provides a more beneficial measure by stipulating that the amount of gratuity payable to a Welfare Officer shall not exceed twenty months' pay;
(iv) hence, the restriction imposed under Section 4(3) and Section 4(5) of the Gratuity Act of Rs.3.50 lacs would not be applicable;
(v) in any event, Rule 2(1)(i) of the General Service Rules specifically contemplates that the service Rules of the appellant shall not apply to full time employees who are subject to the industrial or labour laws or the rules, regulations or standing orders made pursuant to any subject of such laws.
The rival submissions fall for consideration.
At the outset, it would be necessary to briefly advert to the factual position which is not in dispute. The facts pertaining to the service of the deceased employee have been set out in the counter affidavit which was filed by the appellant and for convenience of reference, those averments are extracted hereinbelow:
"The petitioner was initially appointed with Mahavir Sugar Mill Pvt. Ltd. as Welfare Officer Grade-III on 3.6.1973 ... After the acquisition of the factory in the year 1971 the services of the petitioner were transferred under Section 16 of the Acquisition Act, 1971 to U.P. State Sugar Corporation on the same terms and conditions on which the petitioner was employed in Mahavir Sugar Mill Pvt. Ltd."
Section 49 of the Factories Act, 19485 provides for Welfare Officers:
"49. Welfare officers.- (1) In every factory wherein five hundred or more workers are ordinarily employed the occupier shall employ in the factory such number of welfare officers as may be prescribed.
(2) The State Government may prescribe the duties, qualifications and conditions of service of officers employed under sub-section (1)."
Section 49 of the Factories Act embodies a specific requirement for the occupier of a factory in which 500 or more workers are ordinarily employed to engage such number of Welfare Officers as is prescribed. Moreover, the State Government is empowered to prescribe the duties, qualifications and conditions of service of officers employed under sub-section (1). The conditions of service undoubtedly include the payment of gratuity. In pursuance of the provisions of Section 49 of the Factories Act, the State Government framed the Factories Welfare Rules. The expression 'Welfare Officer' is defined in Rule 2-A (d) of the Factories Welfare Rules to mean the Factory Welfare Officers appointed under these Rules. Rule 8-A of the Factories Welfare Rules provides for the payment of gratuity in the following terms:
"8-A. Gratuity.- (1) Gratuity shall be payable to a Welfare Officer on the termination of his employment after he has rendered continuous service for not less than five years,-
(a) on his superannuation, or
(b) on his retirement 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 Welfare Officer is due to death or disablement:
Provided further that in the case of death of the Welfare Officer gratuity payable to him shall be paid to his nominee or, if no nomination has been made, to his heirs.
Explanation.- For the purposes of this rule, disablement means such disablement as incapacitates a Welfare Officer 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 a Welfare Officer at the rate of fifteen days' pay based on the rate of pay last drawn by concerned officer.
(3) The amount or gratuity payable to Welfare Officer shall not exceed twenty months' pay.
(4) Nothing in this rule shall affect the right of a Welfare Officer to receive better terms of gratuity under any award or agreement or contract with the employer.
(5) Notwithstanding anything contained in sub-rule (1) -
(a) the gratuity of a Welfare Officer, whose services have been terminated for any act, wilful omission or negligence causing any damage or loss to, or destruction of, property belonging to employer, shall be forfeited to the extent of the damage or loss so caused;
(b) the gratuity payable to a Welfare Officer shall be wholly forfeited-
(i) if the services of such Welfare Officer have been terminated for his riotous or disorderly conduct or any other act of violence on his part, or
(ii) if the services of such Welfare Officer have been terminated for any act which constitutes an offence involving moral turpitude, provided that such offence is committed by him in the course of his employment."
The Gratuity Act was enacted by Parliament, inter alia, to provide for a scheme for the payment of gratuity to employees engaged in factories among other establishments. Section 4 of the Gratuity Act is in the following terms:
"4. Payment of gratuity. -- (1) Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years,--
(a) on his superannuation, or
(b) on his retirement 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 that in the case of a piece-rated employee, daily wages shall be computed on the average of the total wages received by him for a period of three months immediately preceding the termination of his employment, and, for this purpose, the wages paid for any overtime work shall not be taken into account:
Provided further that in the case of an employee who is employed in a seasonal establishment and who is not so employed throughout the year], the employer shall pay the gratuity at the rate of seven days' wages for each season.
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.
(3) The amount of gratuity payable to an employee shall not exceed ten lakh rupees.
(4) For the purpose of computing the gratuity payable to an employee who is employed, after his disablement, on reduced wages, his wages for the period preceding his disablement shall be taken to be the wages received by him during that period, and his wages for the period subsequent to his disablement shall be taken to be the wages as so reduced.
(5) Nothing in this section shall affect the right of an employee to receive better terms of gratuity under any award or agreement or contract with the employer.
(6) Notwithstanding anything contained in sub-section (1)-,
(a) the gratuity of an employee, whose services have been terminated for any act, wilful omission or negligence causing any damage or loss to, or destruction of, property belonging to the employer shall be forfeited to the extent of the damage or loss so caused;
(b) the gratuity payable to an employee may be wholly or partially forfeited--
(i) if the services of such employee have been terminated for his riotous or disorderly conduct or any other act of violence on his part, or
(ii) if the services of such employee have been terminated for any act which constitutes an offence involving moral turpitude, provided that such offence is committed by him in the course of his employment."
Section 4(3) of the Gratuity Act provides for a ceiling on the gratuity payable to an employee. By Act No. 15 of 2010, the ceiling of Rs.3.50 lacs was enhanced to rupees ten lacs. At the material time, the ceiling was Rs.3.50 lacs.
Section 14 of the Gratuity Act provides as follows:
"14. Act to override other enactments, etc.- The provisions of this Act or any rule made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any enactment other than this Act or in any instrument or contract having effect by virtue of any enactment other than this Act."
Hence, there are two material provisions of the Gratuity Act which would fall for consideration. On the one hand, Section 14 of the Gratuity Act enacts that the provisions of the Act or of any Rule made under it would have effect notwithstanding anything inconsistent contained in any enactment other than the Act or in any instrument or contract. However, Section 4(5) of the Gratuity Act specifically protects the right of an employee to receive better terms of gratuity under any award, agreement or contract with the employer. There can be no dispute about the basic principle of law that the provisions of the Factories Welfare Rules would necessarily govern every contract between the employer and an employee who is governed by the Rules. Any such contract has to be necessarily consistent with the provisions of the Rules. The Rules are an implicit part of the contract of employment of a Factory Welfare Officer. Now, what Section 4(5) of the Gratuity Act enacts is to save the right of an employee to receive better terms of gratuity under an award, agreement or contract with the employer. On the date when the Acquisition Act came into force and, for that matter, on the appointed day under Section 2(a) of the Acquisition Act, the employee was entitled to receive gratuity. This is not in dispute. Under Rule 8-A (3) of the Factories Welfare Rules, the ceiling on the payment of gratuity was twenty months' salary.
Section 16 of the Acquisition Act has a material bearing on the subject matter of the controversy and provides as follows:
"16. Transfer of employees.-(1) Save as otherwise provided in this section, every person (other than a director of a company in whom the ownership, management or control of the scheduled undertaking was vested immediately before the appointed day, or of a subsidiary company of such company, or a relative, as defined in Section 6 of the Companies Act, 1956 (Act I of 1956), of such director or of proprietor or partner or lessee of the undertaking, who was employed exclusively in connection with the schedule undertaking immediately before the appointed day shall, on and from that day become an employee of the Corporation and shall hold his office or service therein by the same tenure, at the same remuneration, and upon the same terms and conditions, and with same rights and privileges as to pension gratuity and other matters as he would have held the same on the appointed day if the undertaking had not been transferred to and vested in the Corporation, and shall continue to do so until his employment in the Corporation is terminated or until his remuneration or other terms and conditions of services are revised or altered by the Corporation under or in pursuance of any law or in accordance with any provision which for the time being governs his service:"
Under sub-section (1) of Section 16 of the Acquisition Act, a person, who is employed exclusively in connection with a scheduled undertaking immediately before the appointed day, became on and from the appointed day, an employee of the Corporation. Moreover, such an employee would hold his office or service on the same tenure at the same remuneration and upon same terms and conditions and with the same rights and privileges as to pension, gratuity and other matters as he would have held on the appointed day if the undertaking had not been transferred to and vested in the Corporation. This would continue to hold so unless his employment in the Corporation was terminated or his remuneration or other conditions of service were revised or altered by the Corporation in pursuance of any law or a provision governing his service. Hence, rights including in respect of gratuity to which the employee was entitled prior to the appointed day were specifically saved unless they were duly modified in accordance with law.
The service Rules of the appellant contained a provision in regard to the payment of gratuity. Rule 29 of the General Service Rules provides as follows:-
"29. Employees covered by the payment of Gratuity Act, 1972 will be paid gratuity according to the provisions of that Act. For employees who are not covered by that Act, payment of gratuity shall be regulated by the provisions as approved by the Board."
Hence, the service rules stipulate that employees, who are covered by the Gratuity Act, would be paid gratuity in accordance with the provisions of that Act. The Gratuity Act specifically provides in Section 4(5) that nothing in the section shall affect the right of an employee to receive better terms of gratuity, inter alia, under any contract with the employer. Hence, the ceiling of Rs.3.50 lacs under the Gratuity Act at the material time on the payment of gratuity, would not affect the right of an employee to receive a higher gratuity under an agreement, award or a contract of employment between the employer and employee. Consequently, even the service Rules of the appellant which incorporate the payment of gratuity as provided in Gratuity Act, did not modify the right which was conferred upon the employee. On the contrary, the service Rules refer to the Gratuity Act. That Act is central legislation which specifically saves such better terms as may be admissible under an agreement, award or contract of employment.
In this background, the following position would emerge:
(i) The employee was engaged by the erstwhile Mahavir Sugar Mill Pvt. Ltd. as a Welfare Officer on 3 June 1973;
(ii) Section 49 of the Factories Act specifically provided for the employment of such Welfare Officers in factories engaging more than 500 workmen and their conditions of service would be such as were determined by the State Government;
(iii) In the State of Uttar Pradesh, the Factories Welfare Rules were framed and Rule 8-A, which was brought into force on 21 September 1979, specifically contained a provision by which a ceiling of twenty months' pay was provided in Rule 8-A (3) of the Factories Welfare Rules;
(iv) Section 4(5) of the Gratuity Act stipulates that nothing in the section shall affect the right of an employee to receive better terms of gratuity under any award or agreement or contract with the employer;
(v) The Factories Welfare Rules must necessarily be read into every contract of employment of a Factory Welfare Officer since those were special Rules which were made to govern the services of such employees who were engaged under the provisions of Section 49 of the Factories Act;
(vi) The overriding provision contained in Section 14 of the Gratuity Act would have to be harmoniously construed with Section 4(5). The overriding provision ensures that the right and benefit to the payment of gratuity under the Central Act cannot be abrogated by any other enactment or an instrument or contract. However, a right to receive better terms of gratuity is specifically saved and protected by Section 4(5) of the Gratuity Act;
(vii) Under Section 16 of the Acquisition Act, the services of the employees of the erstwhile unit which had been taken over, were continued on the same terms and conditions including in regard to the payment of gratuity;
(viii) Rule 29 of the General Service Rules makes a reference to the payment of gratuity under the Gratuity Act. The Gratuity Act includes Section 4(5) which is, therefore, clearly attracted.
The Supreme Court considered the provisions and effect of Section 4(5) of the Gratuity Act in Y.K. Singla Vs. Punjab National Bank and others6. In that case, the appellant was a Chief Manager in Punjab National Bank and retired from service. He was prosecuted, inter alia, for an offence under Section 5(2) read with Section 13(1)(d) of the Prevention of Corruption Act, 1988 and under Section 120-B of the Penal Code but was acquitted by the Trial Court. During the subsistence of the criminal proceedings, the appellant retired from employment. Based on the acquittal, the appellant sought the release of his gratuity and other terminal dues. The appellant claimed the payment of interest on the delayed payment of his retiral dues and eventually filed a writ petition which was allowed by the High Court. In appeal, a Division Bench of the High Court held that the appellant was not entitled to interest on the delayed payment of gratuity. According to the High Court, under the Pension Regulations, the bank was not liable to pay gratuity until the culmination of the proceedings. The Supreme Court held that the right to withhold gratuity was an issue which was separate and distinct from the claim of interest which was raised by the appellant. Adverting to the provisions of Section 4(5) of the Gratuity Act, the Supreme Court observed that even if the Pension Regulations had debarred the payment of interest on account of the delayed payment of gratuity, the employee would have been entitled to interest under Section 7(3) (A) of the Gratuity Act. In that context, the Supreme Court held as follows:-
"Thus viewed, even if the provisions of the 1995, Regulations, had debarred payment of interest on account of delayed payment of gratuity, the same would have been inconsequential. The benefit of interest enuring to an employee, as has been contemplated under section 7(3-A) of the Gratuity Act, cannot be denied to an employee, whose gratuity is regulated by some provision/instrument other than the Gratuity Act. This is so because, the terms of payment of gratuity under the alternative instrument has to ensure better terms, than the ones provided under the Gratuity Act. The effect would be the same, when the concerned provision is silent on the issue. This is so, because the instant situation is not worse than the one discussed above, where there is a provision expressly debarring payment of interest in the manner contemplated under Section 7(3A) of the Gratuity Act. Therefore, even though the 1995, Regulations, are silent on the issue of payment of interest, the appellant would still be entitled to the benefit of Section 7(3A) of the Gratuity Act. If such benefit is not extended to the appellant, the protection contemplated under section 4(5) of the Gratuity Act would stand defeated. Likewise, even the mandate contained in section 14 of the Gratuity Act, deliberated in detail hereinabove, would stand negated. We, therefore, have no hesitation in concluding, that even though the provisions of the 1995, Regulations, are silent on the issue of payment of interest, the least that the appellant would be entitled to, are terms equal to the benefits envisaged under the Gratuity Act. Under the Gratuity Act, the appellant would be entitled to interest, on account of delayed payment of gratuity (as has already been concluded above)." (emphasis supplied) The situation before the Supreme Court was one where the Gratuity Act contained a provision for the payment of interest, whereas the Pension Regulations did not expressly recognise an entitlement to the payment of interest. The situation in the present case is exactly the reverse where the Rules, which are applicable to Welfare Officers, operate to enforce a better stipulation in regard to the upper limit for the payment of gratuity (twenty months' pay) as opposed to the stipulation of Rs.3.50 lacs, which held the field at the material time under Section 4(3) of the Gratuity Act. The principle which has been laid down by the Supreme Court would, however, apply because it will save the right of the employee to receive the better terms of gratuity on the basis of a higher ceiling under Rule 8-A (3) of the Factories Welfare Rules. That right under Rule 8-A (3) would not be abrogated by the ceiling of Rs.3.50 lacs under Section 4(3) of the Gratuity Act, by virtue of the provisions of Section 4(5) of the Gratuity Act.
In the present case, we must also take due note of the pleadings of the parties. The employee, in the course of the writ petition, has specifically made a reference in paragraph 6 to the provisions of Rule 8-A of the Factories Welfare Rules. In paragraph 7 of the writ proceedings, the employee also referred to the case of another Factory Welfare Officer to whom, by an order of the Managing Director dated 28 December 2010, gratuity had been paid on the basis of a ceiling as prescribed in Rule 8-A of the Factories Welfare Rules. In response to the averments contained in paragraph 6 of the writ petition, all that was stated was that the order of the Managing Director, disposing of the representation of the employee in the present case, did not suffer from any illegality and that he would not be entitled to get gratuity under the Factories Welfare Rules. The specific averment in paragraph 7 of the writ petition that another Factory Welfare Officer had been allowed his gratuity by an order of the Managing Director on the basis of the ceiling of twenty months' salary, was not denied in paragraph 9 of the counter affidavit.
As a matter of fact, we may also note that the only ground on which the payment of gratuity under the Factories Welfare Rules was sought to be denied was that in the meantime, the appellant had sold its unit to a third party purchaser. Obviously, there was no merit in that finding in the order of the Managing Director who rejected the claim. The employee retired from service much prior to the sale of the undertaking and on the date of his retirement, he was an employee of the appellant. Such a claim would undoubtedly be maintainable against the appellant and the appellant alone.
For these reasons, we hold that the learned Single Judge was not in error in allowing the claim for the payment of gratuity. Before the learned Single Judge, as the impugned order would indicate, the only point which was urged on behalf of the appellant was the basis of the order of the Managing Director which had rejected the claim only on the ground that the unit had been sold by the appellant to a third party purchaser. Since the issue which has been raised by the appellant in the special appeal is a pure question of law, we have permitted the learned counsel to urge their submissions on the aspects canvassed before the Court in order to bring finality to the proceedings.
For the aforesaid reasons, we accordingly affirm the order of the learned Single Judge. The special appeal shall stand dismissed. There shall be no order as to costs.
Order Date :- 22.4.2015 VMA (Dr. D.Y. Chandrachud, C.J.) (M.K. Gupta, J.) Chief Justice's Court Civil Misc. Delay Condonation Application No.126001 of 2015 In re :
Case :- SPECIAL APPEAL DEFECTIVE No. - 291 of 2015 Appellant :- U.P. State Sugar Corporation Respondent :- Smt. Sharada Devi And 4 Others Counsel for Appellant :- Shakti Swarup Nigam Counsel for Respondent :- C.K. Chaturvedi Hon'ble Dr. Dhananjaya Yeshwant Chandrachud,Chief Justice Hon'ble Manoj Kumar Gupta,J.
This application seeks condonation of delay of 29 days in filing the special appeal.
Since the delay has satisfactorily been explained in the affidavit filed in support of the delay condonation application, the delay in filing the appeal is condoned.
The application is, accordingly, disposed of. There shall be no order as to costs.
Order Date :- 22.4.2015 VMA (Dr. D.Y. Chandrachud, C.J.) (M.K. Gupta, J.)