BCH ELECTRIC LIMITED versus PRADEEP MEHRA on 29 April 2020

[2020] 10 S.C.R. 1

BCH ELECTRIC LIMITED

v.

PRADEEP MEHRA

(Civil Appeal No. 2379 of 2020)

APRIL 29, 2020

[UDAY UMESH LALIT AND SANJIV KHANNA, JJ.]

Payment of Gratuity Act, 1972: ss.4(3), 4(5) – Respondentappointed as Chief Operating Officer resigned after putting 12 yearsof service – His last drawn monthly wage was Rs.24.50 lacs – Claimmade by him for gratuity of Rs.1.83 crores – Appellant-employerheld that respondent was entitled to maximum of Rs.10 lacs as gratuity– The Authorities under the Act and the High Court accepted theclaim preferred by the respondent – Challenge against – Held: s.4(3)stipulates that the amount of gratuity payable to an employee shallnot exceed certain limit and thus puts a cap on the amount payabletowards gratuity – However, s.4(5) states that nothing in this Sectionshall affect the right of an employee to receive better terms of gratuityunder “any award or agreement or contract with the employer” –Thus, as against what is made applicable by the Act, if better termsare available under any arrangement with the employer, s.4(5)stipulates that nothing in s.4 shall affect the right of any employeeto receive such better terms – This means when two choices areavailable, one under provisions of the Act and one under sucharrangement with the employer and if the latter offers better terms,the employee cannot be denied right to receive those higher benefits– In the instant case, Rule 6(b) of the Rules framed under the Schemeof the appellant-Company stipulates that notwithstanding theScheme of the Company, if any member is covered by the Act, theamount of gratuity shall be calculated in accordance with theprovisions of the Act – Similarly, the Appendix to the Schemeprescribes the rates at which the gratuity is to be paid – Thus, theintent of the Trust Deed and the Scheme is clear that the governingprinciples as regards the amount to be calculated and the rates tobe 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 amountis to be so calculated according to the provisions of the Act, in caseof employees covered by the provisions of the Act, there is no other

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Aalternative which is offered by the Company or which is part of anyaward or agreement or contract entered into between the employerand employees – Thus, no reliance could be placed on s.4(5) of theAct to submit that the employees are entitled to some greateradvantage than what is available under the Act – Appellant wasright in going by the provisions of the Act and by the ceilingBprescribed u/s.4(3) of the Act – The Authorities under the Act andthe High Court erred in accepting the claim preferred by therespondent – Any mistakes on its part in making some extra paymentsto some of the other employees would not create a right in favour ofrespondent in the face of the stipulations in the Trust Deed and theCScheme.

Allowing the appeal, the Court

Conclusion

Allowing the appeal, the Court

HELD: 1.1 As on the day, when the respondent resignedfrom his service, that is on 01.06.2012, the relevant ceiling inSub-Section (3) of Section 4 was at the level of “ten lakh rupees”Dand for an employee to be covered by the definition obtaining inSection 2(e) of the Act, there was no wage-bracket or ceiling. Interms of Section 4(1) of the Act, gratuity shall be payable to anemployee in the eventualities referred to therein if he hadrendered continuous service for not less than five years.EExplanation to Section 4(2) inter alia states that the gratuity shallbe payable at the rate of 15 days’ wages for every completed yearof service or part thereof in excess of six months. Explanation toSection 4(2) lays down how the gratuity is to be calculated, whileSection 4(3) stipulates that the amount of gratuity payable to anemployee shall not exceed certain limit and thus puts a cap onFthe amount payable towards gratuity. Section 4(5) then statesthat nothing in said Section shall affect the right of an employeeto receive better terms of gratuity under “any award or agreementor contract with the employer”. [Paras 16, 17][23-A-D]

1.2 For Section 4(5) of the Act, to get attracted, there mustGbe better terms of gratuity available and extendable to anemployee “under any award or agreement or contract with theemployer” as against what has been provided for under and interms of the Act. In other words, as against what is madeapplicable by the Act, if better terms are available under any suchH

arrangement with the employer, Section 4(5) stipulates thatnothing in Section 4 shall affect the right of any employee toreceive such better terms. Thus, when two choices are available,one under provisions of the Act and one under such arrangementwith the employer and if the latter offers better terms, theemployee cannot be denied right to receive those higher benefits.[Para 18][23-D-F]

2.1 The Trust Deed was executed “for the purpose ofproviding gratuities to the employees of the company under thePayment of Gratuity Act”. Clause 15 of the Trust Deed casts anobligation on the trustees to provide payment of gratuity upontermination of service or upon death or retirement of service ofthe Member “as provided in the Rules of Scheme” Rule 6(b) ofthe Rules clearly stipulates that notwithstanding the Scheme ofthe Company, if any member is covered by the Act, the amount ofgratuity shall be calculated in accordance with the provisions ofthe Act. Similar thought is expressed in the Appendix to theScheme which prescribes the rates at which the gratuity is to bepaid. The Scheme thus divides the employees in two categories.First, the employees to whom the Act applies and with respect towhom the amount of gratuity shall be “calculated in accordancewith the provisions of the Act and as per the rates prescribed bythe Act”; the Second category of employees are those to whomthe Act does not apply. According to said Rule 6(b) and Appendix,the calculation of amount of gratuity at the rates prescribed inthe manner laid down in the Appendix, is to be done only in thecase 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 thusclear that the governing principles as regards the amount to becalculated and the rates to be applied have to be in accordancewith the provisions of the Act, if an employee is covered by theprovisions of the Act. If the amount is to be so calculated accordingto the provisions of the Act, in case of employees covered by theprovisions of the Act, there is no other alternative which is offeredby the Company or which is part of any award or agreement orcontract entered into between the employer and employees. Thus, AB

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Ano reliance could be placed on Section 4(5) of the Act to submitthat the employees are entitled to some greater advantage thanwhat is available under the Act. For Section 4(5) to apply theremust be two alternatives, one in terms of the Act and one as perthe award or agreement or contract with the employer. TheScheme on which heavy reliance was placed to submit that itBafforded and made available better terms of gratuity itselfemphasizes that in case of the employees who are covered underthe Act, the amount payable as gratuity shall be in terms of theprovisions of the Act. The Scheme does not therefore offer tothe employees covered by the Act any other alternative apartCfrom what is payable under the Act. [Para 21][24-E-H]

2.3 Rather than making available an alternative to the modeland modalities of calculation of amount of gratuity, as placed onstatute book by the provisions of the Act, the Trust Deed and theScheme contemplates two kinds of employees. One, who areDcovered under the provisions of the Act and the other, who arenot so covered. The historical background and the changes thatthe provisions of Section 2(e) and Section 4 have undergone showthat not all employees were initially sought to be covered underthe Act. Those, who were in wage-brackets greater than whatwas stipulated in Section 2(e) till it was finally amended to doEaway with the wage-bracket, were not covered by the Act. TheTrust Deed and the Scheme sought to devise an apparatus andmake provision for those who were otherwise not covered bythe Act and for this reason contemplated two kinds of employees.The Trust Deed and the Scheme were executed and formulated Fin the year 1979 when the wage-bracket was a definite parameterfor an employee to be covered under the Act. The intent of theTrust Deed and the Scheme has to be understood in thatperspective. The idea was not to afford to the employees whoare covered by the provisions of the Act, a package better thanwhat was made available by the Act, but it was to extend similarGbenefit 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 impactof Rule 6(b) of the scheme. The Single Judge did refer to saidRule 6(b) but found that the Rule was so broadly drafted that itcould not be construed to contemplate the ceiling limit underSection 4(3) of the Act. The true import of Rule 6(b) which getsfurther emphasized by stipulation in the Appendix to the Schemewas lost sight of by the authorities under the Act and by the HighCourt. If an employee is covered by the provisions of the Act,according to said Rule 6(b), the amount of gratuity has to becalculated in accordance with the provisions of the Act. TheAppendix to the Scheme reiterates the same principle. Thus, incase of such an employee the gratuity has to be calculated inaccordance with the provisions of the Act and while so calculating,not only the basic principle available in Section 4(2) as to how thegratuity is to be calculated must be applied but also the ceilingwhich is part of Section 4(3) must also apply. The rates and themodalities of calculations of gratuity as available under the Schemeof the Rules are to apply only to those employees who are notcovered by the provisions of the Act. [Para 23][25-G-H; 26-A-C]

4. The Authorities under the Act and the High Court erredin accepting the claim preferred by the respondent. The appellantwas right in going by the provisions of the Act in the presentmatter and by the ceiling prescribed under Section 4(3) of theAct. Any mistakes on its part in making some extra payments tosome of the other employees would not create a right in favour ofothers in the face of the stipulations in the Trust Deed and theScheme.[Para 24][26-D-E]

Beed District Central Cooperative Bank Ltd. v. State ofMaharashtra and Others (2006) 8 SCC 514 : [2006] 6Suppl. 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.

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ACIVIL APPELLATE JURISDICTION : Civil Appeal No. 2379of 2020.

From the Judgment and Order dated 12.02.2019 of the High Courtof Delhi at New Delhi in Letters Patent Appeal No. 97/2019.

C. U. Singh, Sr. Adv., Gulshan Chawla, Ashish Kumar, Advs. forBthe Appellant.

J.P. Cama, Sr. Adv., Shekhar Kumar, Saurav Prakash, MayanPd., Ms. Suruchi Kr., Utsav Jain, Advs. for the Respondent.

The Judgment of the Court was delivered by CUDAY UMESH LALIT, J.

1. Leave granted.

2. This appeal challenges the judgment and order dated 12.2.2019passed by the High Court[1] dismissing Letters Patent Appeal No.97 of2019 and thereby affirming the decision of the Single Judge of the HighDCourt 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 onehand and three trustees on the other, an “Approved Gratuity Fund” wasconstituted “for the purpose of providing Gratuities to the employees ofEthe Company under the Payment of Gratuity Act, 1972 (hereinafterreferred to as ‘the Act’) and the Gratuity Scheme of the Company”.

Clauses 4, 11 and 15(a) of the Trust Deed are as under:- “4. RULES:

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The Fund shall be governed by the Rules and any reference tothe Rules in these presents shall mean the Rules for the timebeing in force which shall be binding on the Members, theirBeneficiaries and on the Company. A copy of the current Rules isannexed to and the same shall be deemed to form part of thesepresents.

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11. MEMBERS TO HAVE NO LEGAL RIGHT Except asprovided in these presents and in the Rules, no Member or hisBeneficiary shall have any legal claim, right or interest in the Fund.

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1 The High Court of Delhi at New Delhi

Provided always that the Trustees shall administer the Fund forthe benefit of the Members and their Beneficiaries in accordancewith the provisions of these presents and the Rules.

15. PAYMENT OF GRATUITY:

(a) On behalf of the Company, the Trustees shall provide for thepayment of gratuity on termination of service, on death orretirement of the Member or otherwise as provided in the Rulesof Scheme.”

3.1 In the Rules appended to the Scheme the expressions“Company”, “Employee” and “Gratuity” are defined as under:- “2. (a) “Company” shall mean Bhartia Cutler Hammer Limitedand its successors or assigns or any Company or body corporatewhich may by purchase or amalgamation acquire or take over inwhole or in part, the undertaking of the company and with theprevious approval of the Commissioner undertakes to performthe obligations of the Company under the Trust Deed or the Rules.

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(b) “Employee” shall mean a person in the permanent, whole-time and bona fide employment of the Company, including a whole-time Director, but shall not include (i) any member of the staffwho is or may be on probation or who is temporary or part-time

(ii) any apprentice or (iii) a personal or domestic servant.

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(m) “Gratuity” shall mean Gratuity payable under these Rules.”

3.2 Rules 4(b) and 6 of the Rules are as under:- “4. (a) … … …

(b) The Company shall pay to the Trustees in respect ofeach member an ordinary annual contribution in each year basedon an actuarial valuation by a Qualified Actuary subject to Rule103 of the Income Tax Rules 1962 or any statutory enactment orany modification thereof from time to time.

6. A member on ceasing to be a member of the Fund shall beentitled to be paid by the Trustees, the amount due as computed inthe manner laid down hereunder in this Scheme: - A

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(a) The amount of Gratuity payable to the beneficiary shallbe calculated in the manner provided in the Company’s GratuityScheme.

(b) Notwithstanding the provision herein contained, if anyember is covered by the provisions of the Payment of GratuityBAct 1972, the amount of gratuity shall be calculated in accordancewith the provisions of that Act.”

3.3 The Appendix to the Scheme prescribes the rates at whichgratuity will be payable as under:- “Gratuity will be payable to the Employees to whom the Paymentof Gratuity Act, 1972 applies as per the rates prescribed by thesaid Act.

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Gratuity will be payable to the other employee of the company atthe following rates:- (a) On the death or permanent total physical disablement, whilein the service of the Company, or retirement at the age of 55years or if retained by the Company after 55 years, then at thetime of separation from the Company:

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15 days basic salary for each completed year of service subjectto maximum of 20 months basis pay, payable to the employeesEor payable to his heirs, executors or nominee in case of deathof the employee.

(b) On termination of Service:

i. Beyond five years upto 8 years of continuous service atFthe rate of 5 (five) days basic pay for every completedyear of service.

ii. Beyond 8 years upto 10 years of continuous service atthe rate of 10 days (ten) basic salary for every completedyear of service.

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iii. Beyond 10 years upto 15 years of continuous service atthe rate of 12 (twelve) days basic salary for every completedyear of service.

iv. Beyond 15 years of continuous service at the rate of 15(fifteen) days basic salary for every completed year ofHservice subject to maximum of 20 months basic salary.

(c) On resignation or voluntary retirement:

After completion of 5 years of continuous service or moreat the rate of 15 days basic salary per year of completedservice, subject to maximum of 20 months basic pay providedthat the management is satisfied that such resignation orvoluntary retirement is in the interest of the administration.

The rate of basic salary for payment of Gratuity shall bethe last pay drawn by the employee.”

4. On 12.06.2000, the respondent was appointed as ChiefOperating Officer of the appellant-company with basic salary ofRs.1,05,000/- per month on terms and conditions indicated therein. Oneof the terms was:- “11. Gratuity You will be entitled to gratuity on your becoming eligible as perlaws.”

At the same time, one of the conditions was:- “9. Your services will be governed by the Central servicesRules of the Company.”

5. The emoluments payable to the respondent were raised fromtime to time. After having put in about 12 years’ of service, the respondentresigned with effect from 01.06.2012 when his last drawn wages wereRs.24,50,000/-per month. A sum of Rs.36,70,015/- was thereafter paidto the respondent towards retiral dues. The respondent raised a claimthat he was entitled to gratuity amount of Rs.1,83,75000/-. Bycommunication dated 09.08.2012, a bank draft in the sum ofRs.10,19,452/- was forwarded by the appellant to the respondent beingthe sum of Rs.10 Lakhs towards gratuity along with interest accruedthereon from the date of cessation of service of the respondent.

6. The respondent issued a legal notice on 19.10.2012, which wasfollowed by filing of a Claim Petition[2] under Section 7 of the Act. It wassubmitted that the emolument sheets issued to the respondent from timeto time indicated that a sum of 4.81% of his basic salary had beenadjusted towards gratuity; in the year 2007 the respondent was promotedto the post of Chief Executive Officer and his emoluments had almost 2 Claim Petition No. ALC-HOTB/36(66)/2012/ALC-1/36(203)/16-NK

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Adoubled; that his emolument sheet dated 03.06.2011 acknowledged thatthe amount set apart for contribution towards gratuity for that year alonewas Rs.11,54,400/-, and that various other employees had actuallyreceived gratuities without any limit. It was thus prayed that therespondent was entitled to the balance sum of Rs.1,73,75,000/-(Rs.1,83,75,000/- less Rs.10,00,000/- which was received) towardsBgratuity along with interest at the rate of 18% per annum.

7. In its reply to the claim petition, the appellant relied upon Clause15 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 RuleC6(b), it is apparent that the employees of the respondent No.1Company, if covered by the provisions of the Gratuity Act wereentitled for gratuity in accordance with the provisions of theGratuity Act.

(v) As per the aforementioned prescribed scheme, the gratuityDwas always determined as per the method prescribed under theGratuity Act and when the gratuity for any employee exceededthe maximum limit (as prescribed from time to time), under theGratuity Act, it was capped at the prevailing upper limit at therelevant time i.e. the gratuity amount was reduced so as to staywithin the upper caps prescribed by the Gratuity Act.”EWhile responding to the submission that some of the employeeshad received gratuities in excess of Rs.10 lakhs, it was submitted thatthe respondent as Chief Executive officer was responsible for makingsuch excessive payments to said employees and that the respondentreserved its rights to take appropriate remedy in that behalf. It wasFfurther stated:- “In any event, the emoluments sheet never mentioned that theprovisions on the letter of appointment, Trust Deed and provisionsof the Gratuity Act are not to be followed. The petitioner wasentitled to payment of gratuity as per the Gratuity Act in accordanceGwith the terms and conditions of its letter of appointment and theTrust Deed as referred above.”

8. By Order dated 31.07.2017, the Claim Petition was allowed bythe Controlling Authority under the Act. After referring to some of thedecisions of the High Court, it was observed:-H

“The proposition of law that emerges from the aforesaid judgmentis that the employees are entitled to receive higher gratuity amountunder contract, settlement, award, rules, regulations and schemesof the employer in view of section 4(5) of the Act and an employeecan approach the controlling authority to claim determination ofhis gratuity under the more beneficial settlement, award, rules orscheme of the employer.”

8.1. While dealing with the Scheme, it was observed:-

“The fact that the scheme of the respondents only talk about themethod of calculation of gratuity and does not specially put anycap on the amount of gratuity payable under the scheme, the factthat the said scheme was never amended by the respondents toincorporate any ceiling on gratuity, the fact that it does not prescribefor any minimum qualifying service and the fact that the severalemployees have also been paid gratuity higher than the prescribedlimit and that the management has continued to earmark 4.81%of the basic of the applicant and other co-employees, towards thegratuity and showing the same as cost to company in emolumentssheet despite the fact the that the said allocation had alreadycrossed the gratuity limits provided under the Act, leaves no roomfor doubt that the respondents had intended to make more liberaland beneficial gratuity scheme by abandoning the cap on gratuityand minimum qualifying service which otherwise has been providedunder the Act.”

8.2 In the premises, it was held:-

“The applicant is therefore entitled to gratuity under the schemewithout any cap. The gratuity is to be calculated as per the formulaof the Act as the applicant is admittedly covered by the Act, asprovided in the scheme of the management, but the gratuity hasto be paid without any ceiling.”

8.3 The computation as regards the amount payable towardsgratuity was as under:- “The last drawn salary of the applicant is therefore taken asRs.24,50,000/-. The gratuity payable under the scheme is thereforedetermined as under:- 24,50,000 X 15 X 13/26 = 1,83,75,000/- AB

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12SUPREME COURT REPORTS

[2020] 10 S.C.R.

ASince there is no cap on the gratuity under the scheme of theemployer, same is more beneficial to the applicant and he is entitledto receive full gratuity amount of Rs.1,83,75,000/- under the saidscheme.”

9. The appellant being aggrieved, filed appeal before the AppellateBAuthority under the Act challenging the aforesaid order dated 31.07.2017passed by the Controlling Authority and applied for waiver of therequirement of pre-deposit of the amount directed to be paid to therespondent. Submitting that said application for waiver was not beingconsidered by the Appellate Authority, Writ Petition (Civil) No.10319 of2017 was preferred in the High Court by the appellant. The Writ PetitionCwas disposed of by the High Court on 22.11.2017 directing the appellantto submit appropriate bank guarantee in the sum representing the amountof gratuity along with interest till the date of filing of the appeal. Aftercompliance, the appeal was taken up for hearing. By order dated23.03.2018 the appeal[3] was dismissed by the Appellate Authority underDthe Act with following observations:- “The Gratuity Fund so created by the appellant to regulate thegratuity of the employees is necessarily a term of the servicecontract between the employer and the employees as perrequirement under Section 4(5) of the Act.EThe CA has rightly held that the amount of gratuity under thescheme that does not provide any ceiling is very well coveredunder the Section 4(5) of the Act”

10. The appellant filed Writ Petition No.3385 of 2018 in the HighCourt challenging the Orders passed by the Authorities under the Act.FBy its order dated 13.04.2018 the High Court stayed the operation of theorders challenged upon the appellant furnishing appropriate bankguarantee. After exchange of pleadings, the Writ petition was taken upfor final disposal. The submission advanced on behalf of the appellantwas noted as under:-

G“As per clause 15 of this Trust Deed, the petitioner’s employeesare entitled to be paid gratuity out of the aforesaid Fund on thetermination of their service, on death or retirement or otherwiseas provided in the “Rules of the scheme”. The Rules of the schemeand the Appendix thereto provide for two modes of computing an H3 No.36(26)/2017 P.A. DYC

employee’s gratuity. For employees covered under the PG Act,gratuity is to be calculated in accordance with the provisions ofthe Act itself, whereas for the other employees it is to be calculatedas per the relevant clauses in the Appendix. He, however, submitsthat the rules for computing the gratuity of other employees arenow redundant in the light of the Payment of Gratuity (Amendment)Act, 1994, which extended the applicability of the PG Act to allthe employees engaged in a company. Resultantly, all thepetitioner’s employees, including the respondent are now coveredunder the PG Act and, as per the express provisions of thepetitioner’s gratuity scheme, their gratuity has to be calculated asper the statutorily prescribed rate and ceiling limit under Sections4(2) and 4(3) respectively.”

On the other hand the submission of the respondent on the pointwas noted as under:- “the respondent’s claim for gratuity in excess of the ceiling limitprescribed under Section 4(3), is not in conflict with the provisionsof the PG Act. In fact, contrary to what has been contended bythe petitioner, Section 4(5) categorically protects the respondent’sright to receive gratuity under better terms than those prescribedunder the said Act.”

10.1. While considering these submissions, it was observed:- “24. In my considered opinion, there is nothing in the Trust Deeddated 19.03.1979 or the Rules thereunder that curbs therespondent’s entitlement to gratuity to the ceiling limit prescribedunder Section 4(3). The relevant Rule 6(b) of petitioner’s gratuityscheme only stipulates that the amount of gratuity payable to anemployee shall be calculated in accordance with the provisions ofthe PG Act. The “provisions of the PG Act” is a broad phrasethat not only contemplates the rate statutorily prescribed underSection 4(2) and the ceiling limit under Section 4(3), but also theexception carved out under Section 4(5) for employees who havebetter terms of gratuity under an award, or agreement/contractwith the petitioner. Therefore, in the absence of a specific clausethat caps the maximum amount of gratuity payable to therespondent, a broad stipulation in Rule 6(b) that gratuity will becalculated as per the provisions of the PG Act, cannot be construed AB

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to mean that the ceiling limit under Section 4(3) is applicable tothe respondent. To my mind, such an interpretation would amountto selectively applying only Section 4(3) of the Act, by ignoringthe mandate of Section 4(5), when Rule 6(b) in itself contemplatesthe provisions of the PG Act as a whole.

25. In other words, Rule 6(b) merely reiterates what is apparenton a plain reading of Section 4 of the PG Act, i.e., the respondentis entitled to a maximum of Rs.10,00,000/- as gratuity, unless thereis an award, or contract/agreement whereunder he can claimgratuity in excess of the aforesaid ceiling limit. The said Rule is sobroadly drafted that read by itself, it cannot be construed tocontemplate only the ceiling limit under Section 4(3) of the PGAct, but also indicates the provisions of Section 4(5). Similarly,the Appendix to the aforesaid Rules only stipulates that therespondent’s gratuity shall be calculated as per the rates prescribedunder the PG Act, i.e., under Section 4(2). However, it does not inany way stipulate that he is subject to the statutory limit prescribedunder Section 4(3).

26. Now coming to clause 11 of the respondent’s terms ofappointment which, as per the contentions of the learned counselfor the petitioner, clearly lays down that the respondent is onlyentitled to a maximum gratuity of Rs.10,00,000/- as prescribedunder the PG Act. I am of the view that there can be two possibleinterpretations of Clause 11. In the first sense, the phrase “as perlaws” can be read to qualify the word “eligible” so that Clause 11suggests that the respondent shall be entitled to receive gratuityon his meeting the eligibility criteria laid down by the laws in force.For obvious reasons, this particular interpretation of the clausecannot in any way be read to impose a limit on the amount ofgratuity payable to the respondent. In the second sense, which isthe interpretation that has been relied upon by the learned counselfor the petitioner, Clause 11 can be read to suggest that therespondent shall be entitled to gratuity “as per laws” on hisbecoming eligible. In this sense also, the phrase “as per laws” isat best a broad stipulation that takes within its sweep not only theprovisions of Sections 4(2) and 4(3), but also of Section 4(5). LikeRule 6(b) under the Trust Deed dated 19.03.1979, the interpretationof clause 11 relied upon by Mr. Sethi has such a broad implication that it cannot be read so selectively to apply the ceiling limit underSection 4(3) to the amount of gratuity that can be claimed by therespondent. Thus, looked at from every possible angle, there isnothing in the documents relied upon by the learned counsel forthe petitioner that curbs the gratuity payable to the respondent tothe statutory ceiling limit under Section 4(3).”

10.2. As regards, the decision of this Court in Beed District CentralCooperative Bank Ltd. v. State of Maharashtra and others[4], it wasobserved:- “31.Similarly, the decision in Beed District Central Coop. BankLtd. v. State of Maharashtra and Ors.[4], is also not applicable tothe present case. In that case, the appellant/employer’s internalgratuity scheme provided a better rate for computing the gratu9ityof the respondent/workman, but the ceiling limit thereunder waslower than that prescribed by the PG Act. When the respondent/workman sought to avail the benefit of the appellant/employer’sinternal gratuity scheme as also the ceiling limit under the PG Act,the Supreme Court held that the respondent/workman must eitheravail the benefit of his contract with the appellant/employee in itsentirety or the statute. He cannot avail the better terms of hiscontract with appellant/employer and at the same time keep hisoptions open in respect of a part of the statute that suits him.”

The Single Judge of the High Court, thus by order dated 06.02.2019dismissed the aforesaid Writ Petition as well as connected petitions.

11. The matter was carried further by the appellant by filing LettersPatent Appeal No. 97 of 2019 before the Division Bench of the HighCourt which by its judgment and order dated 12.02.2019 affirmed theview taken by the Single Judge and dismissed the appeal. The DivisionBench considered the decision of this Court in Beed District CentralCooperative Bank Ltd.[4] and found as under:- “18. … …There, the employees had opted for the Scheme of theManagement which was less advantageous than the PGA. Theirplea that they should be given gratuity as per the then upper limitas per the PGA was negative. It was held by the Supreme Courtthat an employee while reserving his right to opt for the beneficient AB

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Aprovisions of the statute or the agreement had to opt “for either ofthem and not the best of the terms of the statute as well as thoseof the contract.” In the present case, the Appellant’s GratuityScheme, which was relied upon by the Respondent, itself providedfor the rates as per Section 4(2) of the PGA but without the upperlimit under Section 4(3) PGA. By opting for the Appellant’sBScheme, the Respondent did not lose the benefit of Section 4(2)PGA.

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20. The Court finds that not all elements of the PGA have beenCadopted in the Gratuity Scheme of the Appellant. While the ‘rate’stipulated under Section 4(2) PGA has been adopted, the ceilinglimit under Section 4(3) of the PGA has not. As noted both by theCA and the learned Single Judge, the Appellant itself calculatedthe gratuity not just in the case of the Respondent but in the casesof ten other employees. The Chairman and Managing DirectorD(CMD) of the Appellant would decide the emoluments of theRespondent and issue EES which invariably contained an entrytowards gratuity, which amount was computed at the rate of 4.81%of the Respondent’s annual basic salary. The EEs were issuedunder the signature of the CMD before being handed over to theERespondent in original, thereby becoming a part of the contractbetween the Appellant and the Respondent. In 2007-08 the gratuityamount was Rs.6,34,920/- which was nearly twice the then ceilinglimit of Rs.3.5 lakhs under the PGA. In 2011-12 it wasRs.11,54,400/- which was higher than the ceiling limit of Rs.10lakhs.”F

12. In this appeal challenging the view taken by the High Court,we heard Mr. C.U. Singh, learned Senior Advocate for the appellantand Mr. J.P. Cama, learned Senior Advocate for the respondent.

13. In the submission of Mr. C.U. Singh, learned Senior Advocate,Gthe respondent was clearly covered by the Payment of Gratuity Act,1972 and subject to the ceiling or limit of Rs.10 lacs as provided underSection 4(3).

He submitted that while an employee would be entitled to receivebetter terms of gratuity under Section 4(5) of the Act, such better termscould be claimed only under specific circumstances as set out in SectionH

4(5); that at no stage any claim was raised regarding existence of anyaward, agreement or contract nor was there any pleading about theexistence of any award, agreement or contract. It was further submittedthat in terms of law laid down by this Court in Beed District CentralCooperative Bank Ltd.[4] and Union Bank of India and others vs.C.G. Ajay Babu and Another[5] either the statutory provisions or thecontractual scheme can be followed and not a combination of both theelements.

14. In response, it was submitted by Mr. J.P. Cama, learned SeniorAdvocate for the respondent that since Section 4(5) of the Act has beengiven overriding effect over other provisions of Section 4, as held by thisCourt in Union Bank of India[6], it would override the provisions ofSection 3 of the Act and as such, all that the respondent needed to showwas that the appellant had a scheme for its employees (contract) andthat it did not prescribe any ceiling and that such a scheme would beprotected by Section 4(5) of the Act. As regards the applicability of Rule6(b) of the Scheme, it was submitted:- “It is true that Rule 6(b) contains a non-obstante clause. However,Section 4(5) also contains a non-obstante clause. Section 4(5)being a statutory provision, will prevail. In any case Rule 6(b)must also be reconciled with Rule 6(a) which makes “theCompany’s Gratuity Scheme” applicable to every member,otherwise Rule 6(a) would become otiose. Thus, if “the Company’sGratuity Scheme” is more beneficial than the Act, Rule 6(a) willget its play. There is nothing in Rule 6(b) that excludes a morebeneficial scheme under Section 4(5) and / or Rule 6(a).”

15. Before we deal with the rival submissions, the effect of variousamendments making changes in Section 2(e), Section 4(2) and Section4(3) of the Act are required to be considered. The Act was enacted inthe year 1972 “to provide for a scheme for the payment of gratuity toemployees engaged in factories, mines, oilfields, plantations, ports, railwaycompanies, shop or other establishments and for matters connected therewith and incidental thereto”. The expression “employee” as originallydefined in Section 2(e) was as under:- 5 (2018) 9 SCC 529

6 (2018) 9 SCC 529

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“(e) “employee” means any person (other than an apprentice)employed on wages, not exceeding one thousand rupees permensem, in any establishment, factory, mine, oilfield, plantation,port, railway company or shop, to do any skilled, semi-skilled, orunskilled, manual, supervisory, technical or clerical work, whetherthe terms of such employment are express or implied, but doesnot include any such person who is employed in a managerial oradministrative capacity, or who holds a civil post under the CentralGovernment or a State Government, or who is subject to the AirForce Act, 1950, the Army Act, 1950, or the Navy Act, 1957.

Explanation. - In the case of an employee, who, having beenemployed for a period of not less than five years on wages notexceeding one thousand rupees per mensem, is employed at anytime thereafter on wages exceeding one thousand rupees permensem, gratuity, in respect of the period during which suchemployee was employed on wages not exceeding one thousandrupees per mensem, shall be determined on the basis of the wagesreceived by him during that period;”

The original text of Sub-Sections (2) and (3) of Section 4 of theAct was as under:- “Payment of gratuity:

4. (1) ………

(2) For every completed year of service or part thereof in excessof six months the employer shall pay gratuity to an employeeat the rate of fifteen days’ wages based on the rate of wageslast drawn by the employee concerned.

Provided that in the case of a piece rated employee, dailywages shall be computed on the average of the total wagesreceived by him for a period of three months immediatelypreceding the termination of his employment, and, for thispurpose, the wages paid for any overtime work shall not betaken into account:

Provided further that in the case of an employee employedin a seasonal establishment, the employer shall pay thegratuity at the rate of seven days’ wages for each season.

(3) The amount of gratuity payable to an employee shall notexceed twenty months’ wages.

(4) to (6) … … …”

15.1 By Act 25 of 1984 the expression “one thousand sixhundred rupees” was substituted in place of expression “one thousandrupees” in Section 2(e). Further, in explanation to Section 2(e), similarexpression “one thousand six hundred rupees” was substituted attwo places for “one thousand rupees”. Similarly, expression “andwhether or not such person is employed in a managerial oradministrative capacity” was inserted in Section 2(e) before the clausebeginning with “but does not include any person who holds the postunder the Central Government …”.

15.2 By Act 22 of 1987 further amendments were effected andexpression “two thousand five hundred rupees per mensem or suchhigher amount the Central Government may, having regard to thegeneral level of wages, by notification specify” was substituted inplace of “one thousand six hundred rupees per mensem” in the mainpart of Section 2(e) defining “employee”. Similarly, for the expression“one thousand six hundred rupees per mensem”, the expression “thatamount” was substituted at two places in the Explanation to Section2(e). Said amendment Act also inserted following explanation afterSecond Proviso to Sub-Section (2) of Section 4.

“Explanation.- In the case of a monthly rated employee, thefifteen days’ wages shall be calculated by dividing the monthlyrate of wages last drawn by him by twenty-six and multiplying thequotient by fifteen.”

Sub-Section (3) of Section 4 was also amended and instead of“twenty months’ wages” the expression “fifty thousand rupees” wassubstituted.

15.3 In exercise of power conferred upon it, the CentralGovernment by Notification No. S.O. 863 (E), dated 26.11.1992 raisedthe “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 suchhigher amount as the Central Government may, having regard to A

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Athe general level of wages, by notification specify” occurring inSection 2(e) was omitted. The explanation to Section 2(e) was alsoomitted. Consequently, the definition of “employee” now ceased to haveany limit on wages and all employees, who otherwise answer thedescription in the definition, regardless of wages that they would receive,now stand covered.B

This Amendment Act also substituted expression “one lakh” inplace of the earlier expression “fifty thousand” occurring in Section4(3) of the Act.

15.5 By Act 47 of 2009, for Clause (e) of Section 2 followingCClause was substituted:- “(e) “employee” means any person (other than an apprentice)who is employed for wages, whether the terms of such employmentare express or implied, in any kind of work, manual or otherwise,in or in connection with the work of a factory, mine, oilfield,Dplantation, port, railway company, shop or other establishment towhich this Act applies, but does not include any such person whoholds a post under the Central Government or a State Governmentand is governed by any other Act or by any rules providing forpayment of gratuity;”

E15.6 The ceiling limit of “one lakh rupees” as stipulated in Section4(3) of the Act was successively raised by Act 11 of 1998 and by Act 15of 2010 to “rupees three lakhs and fifty thousand rupees” and “tenlakh rupees” respectively.

15.7 By Act 12 of 2018 the expression “ten lakh rupees” nowFstands substituted by the expression “such amount as may be notifiedby the Central Government from time to time”.

15.8 The provisions of Section 2(e) and Section 4 of the Act, asthey stand this date, are as under:- Section 2(e)

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“employee” means any person (other than an apprentice who isemployed for wages, whether the terms of such employment areexpress or implied, in any kind of work, manual or otherwise, in orin connection with the work of a factory, mine, oilfield, plantation,port, railway company, shop or other establishment to which thisHAct applies, but does not include any such person who holds a post under the Central Government or a State Government and isgoverned by any other Act or by any rules providing for paymentof gratuity;”

Section 4

Payment of gratuity.- (1) Gratuity shall be payable to an employeeon the termination of his employment after he has renderedcontinuous 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 yearsshall not be necessary where the termination of the employmentof any employee is due to death or disablement:

Provided further that in the case of death of the employee, gratuitypayable to him shall be paid to his nominee or, if no nominationhas been made, to his heirs, and where any such nominees orheirs is a minor, the share of such minor, shall be deposited withthe controlling authority who shall invest the same for the benefitof such minor in such bank or other financial institution, as may beprescribed, until such minor attains majority.

Explanation. - For the purposes of this section, disablement meanssuch disablement as incapacitates an employee for the work whichhe, was capable of performing before the accident or diseaseresulting in such disablement.

(2) For every completed year of service or part thereof in excessof six months, the employer shall pay gratuity to an employee atthe rate of fifteen days wages based on the rate of wages lastdrawn by the employee concerned:

Provided that in the case of a piece-rated employee, daily wagesshall be computed on the average of the total wages received byhim for a period of three months immediately preceding thetermination of his employment, and, for this purpose, the wagespaid for any overtime work shall not be taken into account.:

Provided further that in the case of [an employee who is employedin a seasonal establishment and who is riot so employed throughout A

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the year], the employer shall pay the gratuity at the rate of sevendays wages for each season.

Explanation: In the case of a monthly rated employee, the fifteendays wages shall be calculated by dividing the monthly rate ofwages last drawn by him by twenty-six and multiplying the quotientby fifteen.

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(3) The amount of gratuity payable to an employee shall not exceedthree lakhs and fifty thousand] rupees.

(4) For the purpose of computing the gratuity payable to anemployee who is employed, after his disablement, on reducedwages, his wages for the period preceding his disablement shallbe taken to be the wages received by him during that period, andhis wages for the period subsequent to his disablement shall betaken to be the wages as so reduced.

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(5) Nothing in this section shall affect the right of an employee toDreceive better terms of gratuity under any award or agreement orcontract with the employer.

(6) Notwithstanding anything contained in sub-section

(1), -

(a) the gratuity of an employee, whose services have beenterminated for any act, wilful omission or negligencecausing any damage or loss to, or destruction of, propertybelonging to the employer, shall be forfeited to the extentof the damage or loss so caused.

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(b) the gratuity payable to an employee may be wholly orpartially forfeited] –

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(i) if the services of such employee have beenterminated for his riotous or disorderly conduct orany other act of violence on his part, or G

(ii) if the services of such employee have beenterminated for any act which constitutes an offenceinvolving moral turpitude, provided that such offenceis committed by him in the course of hisemployment”

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16. Thus, as on the day, when the respondent resigned from hisservice, that is on 01.06.2012, the relevant ceiling in Sub-Section (3) ofSection 4 was at the level of “ten lakh rupees” and for an employee tobe covered by the definition obtaining in Section 2(e) of the Act, therewas no wage-bracket or ceiling.

17. In terms of Section 4(1) of the Act gratuity shall be payable toan employee in the eventualities referred to therein if he had renderedcontinuous service for not less than five years. Explanation to Section4(2) inter alia states that the gratuity shall be payable at the rate of 15days’ wages for every completed year of service or part thereof in excessof six months. Explanation to Section 4(2) lays down how the gratuity isto be calculated, while Section 4(3) stipulates that the amount of gratuitypayable to an employee shall not exceed certain limit and thus puts a capon the amount payable towards gratuity. Section 4(5) then states thatnothing in said Section shall affect the right of an employee to receivebetter terms of gratuity under “any award or agreement or contract withthe employer”.

18. For Section 4(5) of the Act, to get attracted, there must bebetter terms of gratuity available and extendable to an employee “underany award or agreement or contract with the employer” as against whathas been provided for under and in terms of the Act. In other words, asagainst what is made applicable by the Act, if better terms are availableunder any such arrangement with the employer, Section 4(5) stipulatesthat nothing in Section 4 shall affect the right of any employee to receivesuch better terms. Thus, when two choices are available, one underprovisions of the Act and one under such arrangement with the employerand if the latter offers better terms, the employee cannot be denied rightto receive those higher benefits.

19. But the question still remains whether in the present casethere was such a choice available or not. According to Mr. C.U. Singh,learned Senior Advocate, the case of the respondent would be clearlycovered by the provisions of the Act and not under the Scheme at all.Similar submissions were advanced on behalf of the appellant beforethe High Court, as noted by the Single Judge. However, the submissionswere rejected after placing reliance on Section 4(5) of the Act.

20. We must, therefore, see what exactly has been provided forin the Trust Deed, Scheme and the Rules framed thereunder. The Trust A

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24SUPREME COURT REPORTS

ADeed was executed “for the purpose of providing gratuities to theemployees of the company under the Payment of Gratuity Act”. Clause15 of the Trust Deed casts an obligation on the trustees to providepayment of gratuity upon termination of service or upon death orretirement of service of the Member “as provided in the Rules of Scheme”Rule 6(b) of the Rules clearly stipulates that notwithstanding the SchemeBof the Company, if any member is covered by the Act, the amount ofgratuity shall be calculated in accordance with the provisions of the Act.Similar thought is expressed in the Appendix to the Scheme whichprescribes the rates at which the gratuity is to be paid.

The Scheme thus divides the employees in two categories. First,Cthe employees to whom the Act applies and with respect to whom theamount of gratuity shall be “calculated in accordance with the provisionsof the Act and as per the rates prescribed by the Act”; the Secondcategory of employees are those to whom the Act does not apply.According to said Rule 6(b) and Appendix, the calculation of amount ofDgratuity 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.

21. The intent of the Trust Deed and the Scheme is thus clear thatthe governing principles as regards the amount to be calculated and therates to be applied have to be in accordance with the provisions of theEAct, if an employee is covered by the provisions of the Act. If the amountis to be so calculated according to the provisions of the Act, in case ofemployees covered by the provisions of the Act, there is no otheralternative which is offered by the Company or which is part of anyaward or agreement or contract entered into between the employer andemployees. Thus, no reliance could be placed on Section 4(5) of the ActFto submit that the employees are entitled to some greater advantagethan 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 oneas per the award or agreement or contract with the employer. TheScheme on which heavy reliance was placed to submit that it affordedGand made available better terms of gratuity itself emphasizes that incase of the employees who are covered under the Act, the amountpayable as gratuity shall be in terms of the provisions of the Act. TheScheme does not therefore offer to the employees covered by the Actany other alternative apart from what is payable under the Act.

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22. Rather than making available an alternative to the model andmodalities of calculation of amount of gratuity, as placed on statute bookby the provisions of the Act, the Trust Deed and the Scheme contemplatestwo kinds of employees. One, who are covered under the provisions ofthe Act and the other, who are not so covered. The historical backgroundand the changes that the provisions of Section 2(e) and Section 4 haveundergone show that not all employees were initially sought to be coveredunder the Act. Those, who were in wage-brackets greater than whatwas stipulated in Section 2(e) till it was finally amended to do away withthe wage-bracket, were not covered by the Act. The Trust Deed andthe Scheme sought to devise an apparatus and make provision for thosewho were otherwise not covered by the Act and for this reasoncontemplated two kinds of employees. The Trust Deed and the Schemewere executed and formulated in the year 1979 when the wage-bracketwas 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 inthat perspective. The idea was not to afford to the employees who arecovered by the provisions of the Act, a package better than what wasmade available by the Act, but it was to extend similar benefit to thosewho would not be covered by the Act.

23. In Beed District Central Cooperative Bank Ltd.[4], the gratuityscheme provided by the employer had better rate for computing gratuitybut the ceiling limit was lower; whereas the entitlement under theprovisions of the Act was at a lesser rate but the ceiling prescribed bythe Act was higher than what was provided by the employer. This Courtlaid down that an employee must take complete package as offered bythe employer or that which is available under the Act and he could nothave synthesis or combination of some of the terms under the schemeprovided by the employer while retaining the other terms offered by theAct. That was a situation where two alternatives were available to theemployee. The High Court in the present case, however, distinguishedsaid decision on the ground that the Scheme of the appellant “itselfprovided for the rates as per Section 4(2) of the Act but without upperlimit under Section 4(3) of the Act”. In our view, the High Court failed toconsider the effect and impact of Rule 6(b) of the scheme. The SingleJudge did refer to said Rule 6(b) but found that the Rule was so broadlydrafted that it could not be construed to contemplate the ceiling limitunder 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 A

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AScheme was lost sight of by the authorities under the Act and by theHigh 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 calculatedin accordance with the provisions of the Act. The Appendix to the Schemereiterates the same principle. Thus, in case of such an employee thegratuity has to be calculated in accordance with the provisions of theBAct and while so calculating, not only the basic principle available inSection 4(2) as to how the gratuity is to be calculated must be appliedbut also the ceiling which is part of Section 4(3) must also apply. Therates and the modalities of calculations of gratuity as available under theScheme of the Rules are to apply only to those employees who are notCcovered by the provisions of the Act.

24. We have, therefore, no hesitation in holding that the Authoritiesunder the Act and the High Court erred in accepting the claim preferredby the respondent. We hold that the appellant was right in going by theDprovisions of the Act in the present matter and by the ceiling prescribedunder Section 4(3) of the Act. Any mistakes on its part in making someextra payments to some of the other employees would not create a rightin favour of others in the face of the stipulations in the Trust Deed andthe Scheme.

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25. We, therefore, allow this appeal, set aside the impugnedjudgment and order and dismiss the Claim Petition preferred by therespondent. No costs.

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Devika Gujral

Appeal allowed.

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