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PETITIONER: CALCUTTA INSURANCE Co. LTD.

       Vs.

RESPONDENT: THEIR WORKMEN

DATE OF JUDGMENT: 06/02/1967

BENCH: MITTER, G.K. BENCH: MITTER, G.K. BHARGAVA, VISHISHTHA

CITATION:  1967 AIR 1286            1967 SCR  (2) 596  CITATOR INFO :  R          1968 SC1076  (9)  RF         1969 SC 182  (12)  R          1970 SC 919  (18)  E          1970 SC1421  (11,12,14,15,17,18)  R          1977 SC 941  (22)

ACT: Industrial Dispute-Adjustment of employees in pay scales  on length  of  service-Propriety  of-Provision  for   gratuity, privilege and sick leave--Principles.

HEADNOTE: In 1958, an agreement was entered into between the appellant company and its employees, with reference to certain demands made  by the latter The agreement was in force for 5  years. In 1963, after the expiry of the period, the employees asked for  a revision of the matters dealt with by the  agreement. The Industrial Tribunal to which the industrial dispute  was referred held by its award that : (1) the scales of pay  and dearness   allowance  should  be  increased  and  that   the employees should be pulled up to fit into the revised scales of  pay taking into account their length of service; (2)  on the  question  of gratuity, that 5 years  of  completed  and confirmed  service  was the qualifying period, even  in  the case of retirement or resignation or termination of  service of an employee; and (3) privilege leave should be allowed up to  30 days in a year with accumulation up to 90  days,  and sick leave to the extent of 15 days for each year of service up to 3 months on full pay, and thereafter, three months  on half pay. In appeal to this Court HELD:     (1)  The  question  regarding  revision  must   be examined  on the merits of each individual case.   It  could not be said that the Tribunal should not have upset the 1958 agreement because enough time had not elapsed since the date of  that  agreement.   In 1958, the  company  was  incurring losses  and  it  was only in 1962  that  its  prospects  had improved.  The pay and dearness allowance of the workmen  as a  result of the award should be comparable to the  pay  and dearness  allowance  of  those  workmen  working  in   other comparable  concerns;  and,  the  financial  burden   Should without any difficulty, be met by the company in view of its

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improved working. [603B, F] Workmen of Balmer Lawrie & Co. v. Balmer Lawrie & Co. [1964] 5 S.C.R. 344, followed. Taking into consideration the fact, that the wage scales and dearness  allowance  were low even as compared to  those  in comparable concerns and the established,’ financial capacity "of the employer, since 1962, to bear the burden, the -award of the Tribunal on the question of adjustment of the workmen into  the  new scales was justified. -Unless the  length  of service  of the workmen was taken into  consideration  great hardship  -would  be  inflicted  on  the  existing   workmen compared  to  the salary and dearness  allowance  which  new workers would get.  By fitting the workers in the new scales of pay taking into account their length of service, the com- pany  would be rehabilitating them to a certain extent  even though they may have suffered in the past on account of  the inadequacy of the scales of pay and dearness allowance. [603 C-G; 606 B-G] 597 French Motor Car Co. v. Their Workmen, [1963] Supp. 2 S.C.R. 16,  Hindustan Times v. Their Workmen, [1964] 1  S.C.R.  234 and  Greaves Cotton & Co. v. Their Workmen, [1964] 5  S.C.R. 362, followed. (2)In considering the problem of financial burden imposed by a gratuity scheme on the employer there are two approaches : (i)  to capitalize the burden on the actuarial  basis  which would  show  theoretically  that the burden  would  be  very heavy;  and  (ii)  to look at the scheme  in  its  practical aspect and find out how many employees retire every year  on the  average.  It is the practical approach that  should  be taken  into account in industrial adjudication and  on  that basis, the burden would not be beyond the financial capacity of the company. [608 F-G] Wenger  & Co. v. Their Workmen, [1963] Supp. 2  S.C.R.  862, followed However, a workman should not be entitled to any gratuity on resignation or retirement, after five years of completed and confirmed  service, and the period should be raised  to  ten years.  Otherwise, the workmen may. leave one concern  after another  after putting the short minimum service  qualifying for  gratuity.   Also,  a workman,  who  was  dismissed  for misconduct,  should  be entitled to  receive  gratuity  only after  completion of 15 years of service on the ground  that the  gratuity is a reward for long and meritorious  service, and  further that, in cases where the misconduct  for  which the  workman  was dismissed entailed financial loss  to  the company,  the company would be entitled to recover the  loss from the amount. of gratuity payable. [609 F-H] British  Paints  Ltd. v. Its Workmen, [1961] 1  L.L.J.  407, followed. Garment  Cleaning Works v. Its Workmen, [1962] 1 S.C.R.  711 referred to. (3)Taking   into  consideration  the  leave   available   to employees in other concerns in the region the leave rules as fixed  in the award, should be modified to the  extent  that the  privilege  leave would be allowable at the rate  of  30 days  for  each completed year of service with  a  right  to accumulate  the  same up to 60 days; and sick leave  at  the rate  of  15  days  per year with full  pay  with  right  to accumulate the same up to 3 months. [612 G] Rai Bahadur Diwan Badri Das v. Industrial Tribunal,  Punjab, (1962] 11 L.L.J, (S.C.), followed. The  contention that the Tribunal could not direct that  the employees  should  have  leave  in  excess  of  the   limits specified  in the West Bengal Shops and Establishments  Act,

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1963,  could not be accepted.  The employees  were  enjoying leave at a rate which exceeded the limits prescribed by that Act,  and s. 24 of the Act provided that the Act  would  not affect a privilege to which an employee was entitled on  the date of the commencement of the Act.  L610 G; 612 F]

JUDGMENT: CIVIL  APPELLATE  JURISDICTION : Civil Appeal  No.  1135  of 1965. Appeal by special leave from the Award dated April 25,  1964 of  the Central Government Industrial Tribunal,  Dhanbad  in Reference No. 86 of 1963. A.K.  Sen,  A.  N.  Sinha  and  P.  K.  Mukherjee,  for  the appellant,,   Madan   Mohan  and  G.  D.  Gupta,   for   the respondents. 598 The Judgment of the Court was delivered by Mitter, J. This is an appeal by special leave from the award of  the Industrial Tribunal, Dhanbad dated April  25,  1964. No  less than 13 issues were referred to the Tribunal  under s.  10(1)(d)  of  the  Industrial  Disputes  Act,  1947  for adjudication.  Before this Court, however, the company which has  come  up in appeal limited its -grievance  against  the award on only a very few of them.  These -are               1.Scales  of  pay  2.  Dearness  allowance  3.               Adjustment in the scales 4. Privilege and sick               leave, and 5. Gratuity. In  order  to  appreciate the proper scope  of  the  dispute between the,parties and the extent to which amelioration  of the conditions of service of the workmen with regard to  the matters  mentioned above was justified, it is  necessary  to refer, in brief, to the past .history of the company and its prospects as they have come to light before us.  This is all the more necessary because learned counsel for the appellant made a very strong comment on the Tribunal having fixed  the scales of pay, the dearness allowance etc., at  considerably higher  figures than those prevalent without estimating  the impact  thereof  on  the  finances  of  the  company.    The Tribunal, as -a matter, of fact, expressly mentioned in  its award  that it had before it no estimates as to  the  burden which  the  award would bring about in the finances  of  the company.  The Tribunal had before it the balance sheets  and the  profit and loss accounts of the company from  the  year 1958  to  the year 1962.  In order to be able  to  determine whether the company was in a position to bear the additional burden,  we  requested counsel for the  parties  to  produce before  us  the  balance  sheets and  the  profit  and  loss accounts  of the company for the subsequent years and  these were  made available to us.  We thus had an  opportunity  of judging the financial condition of the company for the years 1963,  1964 and 1965 to find out for ourselves  whether  the burden  was such that the company could bear if we  were  of the view that the increase n the scales of pay and the dear- ness   allowance   awarded   by  the   Tribunal   were   not unreasonable.  Mr. Sen, learned counsel for the;  appellant, stated  more than once and even in the early stages  of  the opening  of the appeal that ’his ,client did not  intend  to take exception to the increase in the scales of pay and  the dearness  allowance but the real grievance of  the  -company was  regarding the adjustment or fitment of the  workmen  in the  new  scales  of  pay  and  dearness  allowance   which, according to .him, would greatly increase the burden of  the company.  Mr. Sen further argued that in all such awards  it

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was  usual to fit the workers in the new scales of  pay  and dearness  allowance giving them one or two lifts in the  new scales  but, ;what the Tribunal had done in this ,me was  to fit the workmen in the new scales on the basis of the                             599 total  length  of  their  service  with  the  company.   The argument  put  in  this form  certainly  suggests  that  the Tribunal had transgressed the usual limits of such increases and  we  therefore have to find out whether  there  are  any exceptional  circumstances  in this case which  justify  the Tribunal  in granting the increases it did and  whether  the finances of the company warrant such increases. There is no doubt that the appellant is one of the  smallest units of the insurance companies undertaking Are, marine and miscellaneous insurance work in India.  This is borne out by the  Indian Insurance Books for the years 1963 and  1964  to which  our  attention  was drawn by  learned  counsel.   The company  was  founded  in  the  year  1923  and  was   doing exclusively life insurance business until 1948.   Thereafter it started general insurance business on a very small scale. After  the passing of the Life Insurance Corporation Act  of 1956  and the taking over of the life insurance business  of the  company  by the Corporation, its activities  were  very much  reduced.  The paid-up capital of the company was  only Rs.  6,54,190/-.   At the end of the year 1961 it  was  left with  loss of Rs. 1,91,472 . 00 as disclosed by its  balance sheet as at 31st December 1961. It does not appear that  the company  had  been  able to declare  any  dividends  to  its shareholders for some years.  As a result of the working  in the  year 1962, it was able to wipe out the. loss which  was being  carried  forward  and to propose a  dividend  to  the shareholders at the rate of 30 paise per share totalling Rs. 19,645/-.   The  balance  sheet as  at  31st  December  1962 disclosed  a  general  reserve  of  Rs.  1,50,000/  and   an investment  reserve  of Rs. 68,000/-.  For the  year  ending 31st  December,  1962  the company earned a  profit  of  Rs. 2,33,052.  33  which enabled it to wipe out the  loss.   The annual report and the balance sheet for the year ending 31st December, 1963 show that the profits for the year  including the  balance  brought  forward  from  the  previous  account amounted  to Rs. 1,91,025. 86 making provision for  taxation amounting to Rs. 98,400/-.  There was thus a surplus of  Rs. 92,718/-.  Out of this the company transferred Rs.  15,000/- to  general  reserve, Rs. 5,0001- to  dividend  equalisation fund,  Rs. 10,000/- to the gratuity fund and Rs.  40,000/for payment  to  shareholders.   All  this loft  a  sum  of  Rs. 22,718/to  be carried forward to the next year.  The  report for the year ending 31st December, 1964 shows a considerable improvement  in the company’s working.  The profits for  the year  including the balance brought forward amounted to  Rs. 2,62,198/-.   The  provision for taxation  amounted  to  Rs. 97,600/-  leaving  a surplus of Rs. 1,64,598/-.   This  was, sought to be disposed of as follows:-                                                  Rs. (a) Transfer to general reserve                  83,000/- (b) Transfer to dividend equalisation fund         5,000/- 600                                                Rs.  (c) Transfer to gratuity fund                  10,000/-  (d) Transfer to investment reserve             19,000/-  (e) Provision for payment to shareholders      39,045/-  The balance to be brought forward was          8,553/- The  report for the year ending 31st December, 1965 is  even better  than that for the year ending 31st  December,  1964. The total profit of the company including the balance of Rs.

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8,553/-  came to Rs. 3,23,630/- out of which, provision  for taxation  was  Rs.  1,03,000/-  leaving  a  surplus  of  Rs. 2,20,630/-. The companysought  to disPose of this  in  the following manner:-                                                     Rs. (a) Transfer to general reserve                   70,000/. (b) Transfer to dividend equalisation fund     5,000/- (c) Transfer to gratuity fund                     10,000/- (d) Transfer to investment reserve.           80,000/- (e) Dividend to shareholders                      52,06.0/- It will therefore be seen that during the years 1963-65  the company was in a position to increase its general reserve by Rs.  1,68,000/-. -It built up an investment reserve  of  Rs. 99,000/-  and  was transferring Rs. 5,0001- per  year  to  a dividend reserve.  It also made a provision of Rs.  10,000/- each  year  for payment of gratuity which we shall  have  to consider later. The  company  had, at all material times, about  60  workmen employed  at  the  registered office  at  Calcutta  and  its branches  at  Delhi,  Madras,  Kanpur,  Meerut  and  Dhubri. Besides  this, the -company also had 100 persons  ’described as  field  staff.  In 1957 there were in  existence  certain grades  and  scales  of  pay  for  different  categories  of employees  at  the  Head Office  and  branch  offices.   The employees were also getting some dearness allowance as  also bonus  at the rate of one month’s basic wage at the time  of the Durga Pooja festival.  The field staff had no pay scale. As soon as the .company engaged itself in exclusive  general insurance business and its prospects seemed to brighten  up, the  employees presented a charter of  demands.   Ultimately the  company  and its workmen entered into an  agreement  on April  29,  1958  which was to be in force  for  five  years commencing from January 1. 1958.  The employees were divided into  two categories, viz., (1) filing assistants  and  sub- staff and (2) assistants.  The scales of the former were  to be  Rs. 20-2-32-3-50 EB-5-75 while, that of the  latter  was Rs. 55-5-757/8-150-FB-10-200-EB-15-305.  There was to be  no adjustment in 601 salary  for fitting in the grade.  The sub-staff were to  be paid  dearness  allowance at Rs. 38/- p.m. at a  flat  rate; filing assistants were to be paid dearness allowance at  Rs. 37/-  p.m. and assistants at Rs. 55/- p.m. The bonus was  to remain  as before as was the case with provident fund.   The agreement provided for gratuity as follows               "Gratuity shall be payable where-               (a)   an  employee who has been in  continuous               service for not less than 15 years, and               (i)   his  services  are  terminated  for  any               reason   whatsoever,  otherwise  than   as   a               punishment  inflicted by way  of  disciplinary               action; or               (ii)  he voluntarily resigns from the service.               (b)   An employee-               (i)   dies while he is in service, or               (ii)  retires  from  service on  his  reaching               superannuation, or               (iii) his services are terminated as a measure               of retrenchment or consequent on the abolition               of his post;               The employee or his heirs, as the case may be,               shall    be   paid   on   such    termination,               retrenchment,  resignation or  death  gratuity               which shall be equivalent to one month’s basic               pay for every completed year of service or any

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             part  thereof in excess of six months  subject               to   a  maximum  of  fifteen   months’   basic               pay........ The  leave  rules were to be left as before.  There  was  an attempt  at conciliation which however came to  nothing  and ultimately  the  matter  was  referred  to  the   Industrial Tribunal.  The Tribunal after taking evidence, both oral and documentary,  and referring to the accounts of  the  company from  1958  to 1962 concluded that the  company  was  making profit at least since 1961 and was in a prosperous condition with the capacity to bear additional financial liability  if the  pay scales and other demands of the union were  allowed to  some reasonable extent.  As regards the pay  scales  and dearness allowance, the same were increased by the award  as follows:-   Scale   of pay Grade A   Sub-staff       Rs. 30-2-40-3-70-EB-5-95           1 (20 years) Grade B   Filing          Rs. 40-3-70-4-90-EB-5-135      Assistants.              (24 years) Grade C   Assistants      Rs. 75-5-95-8-135-EB-15-270-EB-                              25-320 (22 years). 602 The dearness allowance of subordinate staff was increased to Rs.  40/- flat rate per month; that of filing assistants  to Rs.   SO/- per month and that of assistants to Rs. 70/-  per month.   With  regard to the adjustment in the  scales,  the Tribunal concluded that the length of service was to be  the real basis on which adjustment in the new revised scales  of pay  would be made and the employees for whom there  was  an existing  pay, scale which was being revised  and  increased will be pulled up to fit in the revised scales of pay taking into account their length of service. We  were handed up certain charts by counsel on both  sides. It  is admitted that the paid-up capital of the company  and its premium income are comparable only to All India  General Insurance Co. and Co-operative General Insurance Company out of  the  companies mentioned in the  Indian  Insurance  Year Books.   The  free  reserves of three  companies  were  also comparable  as  also the paid-up capital and  reserve.   The scales  of salary as fixed by the Tribunal in this case  are also comparable to those in the All India General  Insurance Company  and Co-operative General Insurance’  Company.   The position  of  these three companies according to  the  chart made over to us is as follows Comparative  Chart to show salaries receivable at  different stages in three following Companies as compiled from figures at pages 120 and 40 of the Paper Book -------------------------------------------------------------                After     After     AfterAfter Salary    Name of Company     5    10   1520                years     years     yearsyears --------------------------------------------------------------                                Rs. Rs.  Rs. Rs. Grade A All India General      40  50   6580      Co-operative      General                   45   60  78   90      Calcutta Insurance        40   55  70.95 Grade C All India General      100  140 190242      Co-operative      General                   110   160 210  260      Calcutta Insurance        103   150 225 320 Mr.  Sen also handed up another chart which showed that  the total  increase in the basic salary of all the employees  of the company as a result of the award would be Rs. 853/-  per

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month  while  the total increase in dearness  allowance  per month  would be Rs. 889/-.  As a result of the  increase  in the  provident fund contribution of the company to  81%  the total  increase  of burden imposed on  the  company  thereby would be Rs. 340/- per month.  In other words, 603 these  three  increases would result in the  outgoing  being augmented by Rs. 2,000/- p.m. or Rs. 24,000/- annually.   It is  to be borne in mind that if the company were to  pay  to the staff an additional Rs. 24,000/- per year it would  save approximately  income-tax  of’ Rs. 12,000/- per  year.   The total  burden  of the company would therefore  be  only  Rs. 12,000/- per year or Rs. 1,000/- per month.  In view of  the general  improvement in the working of the company  for  the three years after 1962, there is no reason to hold that  the impact of the additional burden on the company by the  award will  be  such that it would be difficult for  it  to  meet. After  all  if the company’s position  keeps  on  improving, there  is no reason why the men who work for it  should  not come in for a share of the balance of the profits in  common with the share-holders of the company.  Of course, this does not mean that any increase in the scales of pay and dearness allowance  will be upheld because the company is  showing  a profit.   We have to take into consideration the  scales  of pay and dearness allowance prevalent in other companies of a comparable  status  as  also keep in  mind  the  present-day increase  in prices all round and the difficulty  which  men with  slender means have to face in order to make both  ends meet  (if they can be met at all).  We find that the  scales prevalent  in  this company were unusually low  compared  to those of other comparable concerns before the’ date of’  the award.   We  cannot also ignore the fact-  that  unless  the length of service of the workman is taken into consideration great  hardship  will be inflicted on the  existing  workmen compared  to  the salary and dearness  allowance  which  new workers  will  get.  It cannot be disputed that on  the  old scale a member of the sub-staff who has been in the  company for five years would get a basic salary of Rs. 30/per  month if  his length of service was to be ignored.  This would  be the  same as that of a new entrant.  By fitting the  workers in the new scales of pay taking into account their length of service,  the  company  would be rehabilitating  them  to  a certain  extent  even though they may have suffered  in  the past  on account of the inadequacy of the scales of pay  and dearness  allowance.  The pay and dearness allowance of  the workmen  as  a result of the award would  be  comparable  to those  workmen  working in other comparable  concerns.   The financial  burden can without any difficulty be met  by  the company in view of its improved working. We  may now take note of a few decisions on the question  of fitting  in workmen in the new scales of pay  introduced  by the  employers.   As  early as  1952  the  Labour  Appellate Tribunal observed in Bijli Mazdoor v. U.P. Electric Co.  (1) that               "Normally, in question of ’fitting in’  length               of  service  of the employees  is  taken  into               account  and  in the absence of  any  evidence               that another uniform rule was followed by  the               Company,  we must hold that length of  service               is               (1)   [1952] L.A.C. 475,482.               6O4               the only criterion available and to be adopted               in laying down the rules of ’fitting in’." It Was not disputed in that case that length of service  had

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not been taken into consideration in making the  adjustments to  the new rates.  In that case the  Regional  Conciliation Board  had  framed certain rules one of which  was  that  an employee  should  be allowed one increment of  the  proposed reorganisation  scheme  for  every three  years  of  service subject  to a maximum of five increments on the  minimum  of the   new   grade  on  a  particular  designation   of   the reorganisation scheme or the salary which he was drawing  on September 30, 1946 whichever may be higher. The  Tribunal  in  that case thought  that  there  were  two omissions in the rule which it sought to rectify, one by way of  a proviso and the other by way of an  explanation.   The proviso  was that an employee should not get more  than  the maximum  of the new grade in which he was fitted in and  the explanation  was "in calculating the length of service,  the period  during  which  the employee was  serving  under  the designation  of the new grade to which he is fitted  in,  is only to be reckoned and not the entire period of the service in  the  Company;  that  is to say,  his  service  in  other designations  will  not  be  reckoned  in  calculating   the increments according to this rule." Mr. Sen relied on the explanation formulated by the Tribunal and  contended that we should guide ourselves by  the  same. We  do not think that should be the invariable rule  as  the following  decisions  of this Court will  show.   In  French Motor Car Co. v. The Workmen(1) it was observed :               ".......... generally adjustments are  granted               when  scales of wages are fixed for the  first               time.  But there is nothing in law to  prevent               the tribunal from granting adjustment even  in               cases  where  previously pay  scales  were  in               existence;  but that has to be done  sparingly               taking   into  consideration  the  facts   and               circumstances of each case.  The usual  reason               for granting adjustment even where wage scales               were   formerly  in  existence  is  that   the               increments provided in the former wage  scales               were  particularly low and  therefore  justice               required  that adjustment should be granted  a               second time." It  is  necessary to bear in mind that in that case  it  was found  that  the particular concern was already  paying  the highest wages in-its own line of business, but  nevertheless it  was  said that industrial Courts would be  justified  in looking  at  wages  paid in that region in  other  lines  of business  which  were as nearly similar as possible  to  the line of business carried on by the concern before it.  What (1)  [1963] Supp.  1 S.C.R. 16 : A.I.R. 1963 S.C. 1327. 605 are  the  factors to be taken note of  in  considering  what adjustments  should  be  given in fixing  wage  scales  were considered  at  some  length in  Hindustan  Times  v.  Their Workmen(1).  It was there found that the wage scales of  the workmen  had  remained practically unaltered for  almost  12 years  during  which the cost of living had  risen  steeply. The  Tribunal  further  found  that  the  company  had  been prospering and had financial stability.  This Court examined the  balance  sheets and the other materials on  record  and agreed  with the conclusion arrived at by the Tribunal.   In Greaves  Cotton & Co. v. Their Workmen(2) the question  came up for consideration once more before this Court.  Referring to  the earlier cases it was said that the question  whether adjustment should be granted or not was always one depending upon  the facts and circumstances of each case.’  The  Court found on a comparison of the scales of pay of the  appellant

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concern and those prevalent in other concerns that the  pay, scales were not high as compared to pay scales in comparable concerns  from 1950 and if anything, they were on the  lower side.’ The Court also found that in the appellant’s concerns the  first  1 rate of increment was generally on  the  lower side  and  lasted for a longer period than in  the  case  of comparable  concerns.  In these circumstances-the  award  of the   Tribunal  deciding  to  give  increments  by  way   of adjustments was upheld although as a result thereof the  em- ployees  of the appellant’s concerns would be getting a  pay packet  which would stand comparison with some of  the  best concerns  in the region.  In Workmen of Balmer Lawrie &  Co. v. Balmer Lawrie & Co.(3) it was said               "If  the  paying  capacity  of  the   employer               increases  or  the  cost of  living  shows  an               upward trend...... or there has been a rise in               the wage structure in comparable industries in               the  region,  industrial  employees  would  be               justified,  in  making  a claim  for  the  be-               "examination of the wage structure and if such               a    claim   is   referred   for    industrial               adjudication,   the  Adjudicator  would.   not               normally  be justified in rejecting it  solely               on the ground that enough time has not  passed               after  the.  making  of  the  award,  or  that               material change in relevant circumstances  had               not been proved It is, of course, not possible               to  lay  down any hard and fast  rule  in  the               matter.   The question as to revision must  be               examined on the merits in each individual case               that is brought before an adjudicator for  his               adjudication." We  refer  to these observations in order  to  negative  the contention put forward by Mr. Sen on behalf of the appellant that it Was only in 1958 that the company and its  employees had entered into an (1) [1964] 1. S. C.R. 234.                       (2)  [1964] 5 S.C.R. 362. (3)  [1964] 5 S.C.R. 344. 606 agreement with regard to all these matters and the  Tribunal should  not  have upset that agreement  merely  because  the employees  thought  that their scales of pay  were  low  and required  readjustment.  The prospects of the company in  1- 958  were  far from bright as the earlier passages  in  this judgment  will  show.  As a matter of fact the  company  was incurring  losses.   It was only in 1962  that  the  company turned  the corner and its prospects have  been  brightening ever  since.   Taking into consideration the fact  that  the wage scales and dearness allowance were low even as compared to   comparable  concerns  and  the  established   financial capacity of the employer to bear the burden, we do not  feel justified  in  upsetting  the  award  of  the  Tribunal   or introducing  any  modification thereto on  the  question  of adjustment of the workmen into the new scales. On  the question of gratuity the Tribunal noted  that  there was no difference between the parties regarding the rate  at which  it should be paid and the only dispute  between  them was  as regards the period of completed service after  which it  should  be given.  The Tribunal further noted  that  the company had ultimately agreed that the maximum proposals  of the  company  as modified and given in Ex.  v-16  should  be given  effect to as mentioned by the  Conciliation  Officer. The  Tribunal  awarded that the company should  pay  to  its employees who were permanently: and totally disabled as duly

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certified by a physician appointed by the company or in case of death or in case of retirement, termination,  resignation etc. after five years of completed and confirmed service one month’s  salary  for a year of service up to  a  maximum  of fifteen months’ basic pay- The main attack against the award on this point was that the Tribunal should not have provided for payment of gratuity on resignation by the employee after only five years’  service. It  was argued that this would be an incentive to a  workman to  leave the service of the company after five,  years  and seek  employment elsewhere.  On the question  of  retirement also it was contended that five years was too short a period entitling a workman to gratuity and that the minimum  period should  have been fixed at 15 years.  It was further  argued that  no gratuity should be payable to a workman in case  of his dismissal on the ground of misconduct. It  is therefore necessary to examine the decisions of  this Court  on this point, for unless a case for revision of  the same  is  made out it is only proper that  we  should  guide ourselves  by what has been held by this Court  before.   As far back as 1956, this Court observed in the Indian Oxygen & Acetylene Co. Ltd. (1) that               "It  is  now  well-settled  by  a  series   of               decisions of the Appellate Tribunal that where               an employer company               (1)   [1956] 1 L.L.J. 435.               607               has  the financial capacity the workmen  would               be  entitled  to the benefit  of  gratuity  in               addition  to  the benefits  of  the  Provident               Fund.   In considering the financial  capacity               of  the  concern what has to be  seen  is  the               general  financial stability of  the  concern.               ’The factors to be considered before  granting               a scheme of gratuity are the broad aspects  of               the  financial condition of the  concern,  its               profit  earing capacity, the profit earned  in               the past, its reserves and the possibility  of               replenishing   the  reserves,  the  claim   of               capital   put  having  regard  to   the   risk               involved, in short the financial stability  of               the concern." In  that  case the Court awarded gratuity on  retirement  or resignation  of  an employee after 15  years  of  continuous service, 15 months’ salary or wage.  The above  observations were repeated in Express Newspapers (Private) Ltd. & Anr. v. The  Union of India & others.(,) It was further observed  in that case that gratuity was a reward for good, efficient and faithful service rendered for a considerable period and that there  would be no justification for awarding the same  when an  employee  voluntarily  resigned  and  brought  about   a termination   of   his  service,  except   in   "exceptional circumstances. In Express Newspaper(1) case it was held that where an employee voluntarily resigned from service after, a period of only three- years there would be no  justification for awarding him a gratuity and any such provision would  be unreasonable. In  Garment  Cleaning Works v. Its Workmen(2)  the  question which  came  up  for consideration  was,  whether  an  award providing  for  gratuity on retirement or resignation  of  a workman  after ten year’s service at ten  days  consolidated wages  for  each  year’s  service  should  be  upheld.   The contention  put forward on behalf of the employer  was  that the  minimum  period  of  service  entitling  a  workman  to gratuity should be fixed at 15 years and reference was  made

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to  the case of Express Newspapers Ltd.(1). It  was  however said   by  this  Court  that  the  observation  in   express Newspapers’  case  was not intended to lay down  a  rule  of universal application.  It was observed that :               "Gratuity   is  not  paid  to   the   employee               gratuitously or merely as a matter of boon. it               is paid to him for the service rendered by him               to  the employer, and when it is once  earned,               it  is difficult to understand why  it  should               necessarily  be denied to him whatever may  be               the    nature    of   misconduct    for    his               dismissal......  If the misconduct  for  which               the  service of an employee is terminated  has               caused  financial  loss  to  the  works,   the               before gratuity could be paid to the  employee               he is called upon to corn-               (1) [1959] S.C.R. 12,156.               (2),[1962] 1 S.C.R. 731,               608               pensate  the  employer for the  whole  of  the               financial  loss caused by his misconduct,  and               after   this  compensation  is  paid  to   the               employer  if any balance from gratuity  claim-               able  by the employee remains that is paid  to               him." The  opinion  expressed in that case was that  gratuity  was earned  by an employee for long and meritorious service  and consequently  it should be available to him even  though  at the  end of such service he- may have been found  guilty  of misconduct entailing his dismissal. In  principle,  it  is  difficult to  concur  in  the  above opinion  Gratuity cannot be put on the same level as  wages. We  are  inclined to think that it is paid to a  workman  to ensure  good  conduct through-out the period he  serves  the employer.  "Long and meritorious service" must mean long and unbroken  period of service meritorious to the end.  As  the period  of service must be unbroken, so must the  continuity of  meritorious service be a condition for anti I thing  the workman  to gratuity.  If a workman commits such  misconduct as causes financial loss to his employer, the employer would under  the  general law have a right of action  against  the employee  for  the loss caused and making  a  provision  for withholding  payment of gratuity where such loss  caused  to the  employer  does  not  seem to,  aid  to  the  harmonious employment   of  laborers  or  workmen.   Further,   ,   the misconduct may be such as to undermine the discipline in the workers  case  in which it would be extremely  difficult  to assess  the  financial loss to the employer.  It  is  to  be noted  that  in the last mentioned case this Court  did  not think fit to modify the award of the Tribunal. On  the  financial  aspect of a  gratuity  scheme,  we  were referred  to the case of Wenger & Co. v.  their  Workmen(1). There it was observed by this Court that the problem of  the burden imposed by the gratuity scheme could be looked at  in two  ways.  One was to capitalise the burden o  n  actuarial basis  which would show theoretically that the burden  would be  very heavy  and the other was to look at the  scheme  in its practical aspect and find out how many employees  retire every year on the average.  According to this Court, it  was this  practical  approach  which  ought  to  be  taken  into account.  Further, it was held that the award providing  for payment  of gratuity for a continuous service of  two  years and more, termination of service for whatever reason  except by way of dismissal for misconduct involving moral turpitude was  unduly  liberal.  This Court ordered  deletion  of  the

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words  ’involving  moral turpitude’ from  the  provision  of gratuity and directed that for termination of service caused by the employer the minimum period of service for payment of gratuity should be five years and in regard to  resignation, the  employee should be entitled to get gratuity only if  he had 10 years completed service to his. credit. (1)  [1963] 11 L.L.J. 403.                             609 In  British  Paints  (India)  Ltd.  v.  Its  Workmen(1)  the Tribunal  had  fixed  five  years  minimum  service  as  the qualifying period to enable a workman to earn gratuity which was  payable  in  case of death or  discharge  or  voluntary retirement  on grounds of medical, unfitness or  resignation before  reaching  the age of superannuation,  retirement  on reaching the age of superannuation or termination of service by  the company for reasons other than misconduct  resulting in loss to the company in money and property.  In that  case the  Court  observed  that the reason for  providing  for  a longer  minimum period for earning gratuity in the  case  of voluntary retirement or resignation was to see that  workmen do  not  leave one concern after another after  putting  the short minimum service qualifying for gratuity.  It was  said that a longer minimum in the case of voluntary retirement or resignation  makes it more probable that the  workmen  would stick  to the company where they were working.   Ultimately, this Court modified the gratuity-scheme and ordered that  in the  case  of  voluntary retirement or  resignation  by  the employee  before  reaching the age  of  superannuation,  the minimum period of qualifying service for gratuity should  be ten years and not five years. Mr. Sen argued that. the scheme of gratuity as framed by the Tribunal involved the setting apart of Rs. 10,000/ per  year out  of the profits of the company.  According to him,  the, burden  was  too  heavy  for the  company  and  without  any justification.   It  must be noted that  the  provision  for setting apart Rs. 10,000/ every year was said to be fixed on actuarial basis and not the practical approach formulated by this  Court in the case of Wenger & Co.(2). In our view,  it is this practical approach which the Court should  consider. and  on  that  basis  the  burden  would  certainly  not  be anywhere. in the region fixed by the company or be such.  as to  be struck down as beyond the financial capacity  of  the company. We do however feel that a workman should not be entitled  to any  gratuity  on  resignation  only  after  five  years  of completed  and  confirmed  service  and  that  in  case   of resignation  this period should be raised to ten years.   We also hold, following the principles laid down in the  former decisions  of this Court, that a workman, who is  disn-dssed for misconduct, should be entitled to receive gratuity  only after  completion of 15 years of service on the ground  that gratuity  is a reward for long and meritorious service,  and further  that, in cases where the misconduct for  which  the workman  is  disn-dssed  entailed  financial  loss  to   the company,  the company would be entitled to set off the  loss from  the  amount of gratuity payable.  In our  opinion  the award  should also be modified by providing for a  ten  year qualifying  period  for gratuity. on retirement.   Save  as. above the award as to gratuity will stand’. (1)  [1961] 1 L.L.J. 407.                    (2) [1963]   11 L.L.J. 403, 4610 The  privilege  leave  which the  employees  were  enjoying. before  the  award was 21 days in the year  after  every  12 months  of continuous service which could be accumulated  up

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to  a maximum of 45 days and had to be exhausted within  six months  following the two years during which the  leave  had been earned; but if the company ,,could not grant leave  due to   exigencies  of  business  when  it  was  applied   for, accumulation was to be allowed up to a maximum of 60 days. Before  the date of the award, sick leave was to be  treated as  casual  leave in the first instance.  If the  period  of leave  was  in excess casual leave available, it was  to  be treated  as privilege leave.  If sick leave was required  in excess  of  the casual and privilege leaves, it  was  to  be allowed  up to a maximum of 15 days for each completed  year of service to be accumulated up to three months on full  pay and further three months on hat pay.  The Tribunal by its award allowed privilege leave up to  30 days  in  a year with accumulation up to 90  days  and  sick leave  to the extent of 15 days for each year of service  up to  three months on full pay and thereafter three months  on half pay. Mr.  Sen contended that the Tribunal bad gone wrong  in  the matter of fixation of leave and should have guided itself by the  West  Bengal Shops and Establishments Act,  1963  which applied  to the appellant.  S. 11 (a) of that  Act  provided that a person employed in a shop or an establishment was  to be entitled for every completed year of continuous  service, to privilege leave on full pay for four.teen days.  S. 11(b) provided  that every such person was to be entitled to  sick leave in every year on half pay for fourteen days on medical certificate obtained from a medical practitioner in terms of the  Act.   The  proviso  to  the  section  laid  down  that privilege   leave   admissible  under  cl.  (a)   might   be accumulated  up  to a maximum of not more than 28  days  and sick  leave  under cl. (b) might be so accumulated up  to  a maximum  of not more than 56 days.  S. 24 of the  Act  which came  into force in 1963 laid down that nothing in  the  Act was  to  affect any right or privilege to which  any  person ,employed  in any shop or establishment was entitled on  the date  of the commencement of the Act under any law  for  the time  being in force or under any contract, custom or  usage in  force on that date if such right or privilege  was  more favorable to him than any right or privilege conferred  upon him by the Act or granted to him at the time of appointment. Our  attention  was  also  drawn  to  the  Delhi  Shops  and Establishments  Act, 1954 s. 22 whereof provided that  every person employed in an establishment shall be entitled  after twelve  months of continuous employment, to privilege  leave with full wages for a total period of not less than 15  days and to sickness or casual leave with 6 11 wages for a total period not exceeding 12 days provided that privilege  leave might be accumulated up to a maximum of  30 days and sick leave was not to be accumulated. We  were also referred to S. 79 of the Factories  Act  under which  every worker who had worked for a period of 240  days or  more  in  a factory during a calendar  year  was  to  be allowed  during  the subsequent calendar  year,  leave  with wages for a number of days calculated at the rate of one day for  every  20 days of work performed by him and  the  total number of days of leave which might be carried forward to  a succeeding year was not to exceed 30 days. Section  78  of  the  Factories  Act  laid  down  that   the provisions of Chapter VIII with regard to annual leave etc., were not to operate to the prejudice of any right to which a worker  might be entitled under any other law or  under  the terms  of any award, agreement or contract of  service.   In Alembic  Chemical Works Co. v. Its Workmen(1), the  Tribunal

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on  a  reference  under s. 10(1)(d) had  directed  that  the workmen  should be entitled to privilege leave up  to  three years completed years of service, 16 days per year and up to nine  completed years, 22 days per year and  thereafter  one month for every 11 months of service with accumulation up to three years.  The Tribunal had also provided for sick  leave at  15 days in a year with full pay and  dearness  allowance with a right to accumulate up to 45 days. In appeal to this Court, it was contended that the  Tribunal had  no  jurisdiction to make such an award in view  of  the provisions of S. 79 of the Factories Act.  The question  was dealt with at length by this Court and the provisions of ss. 79,  78 and 84 which enabled the State Government to  exempt any  factory  from all or any of the provisions  of  Chapter VIII subject to such conditions as might be specified in the order,  were  examined.  According to this Court,  s.  79(1) provided  for a minimum rather than the maximum leave  which might be awarded to the worker.  The Court further sought to reinforce its conclusion by examination of the amendments to the  Act  introduced from time to time to  show  that  these always sought to make the provisions more liberal in  favour of the workers. In  Rai  Bahadur  Diwan Badri Das  v.  Industrial  Tribunal, Puniab(2), the Industrial Tribunal had directed that all the workmen  in  the  press section should  be  given  the  same quantum of leave viz., 30 days leave with wages irrespective of the question as to whether they took up employment  after 1st July, 1956.  The management had modified the leave rules prior  thereto  and  classified the  press  workers  in  two categories : (1) workers who were employed on or before  1st July,  1956 and (2) those who were employed after 1st  July, 1956.   In respect of the first category benefit of 30  days leave with wages (1) 11 9611 3 S.C.R. 297. M2Sup.Cl/67-10 (2) [1962] 11 L.L 366, 612 was  given while the workers in the second category were  to have  leave  as  per s. 79 of the  Factories  Act.   It  was observed by this Court:               " Generally, in the matter of providing  leave               reles, industrial adjudication prefers to have               similar  conditions  of service  in  the  same               industry  situated in the same region.   There               is no evidence adduced in this case in  regard               to the condition of earned leave prevailing in               the comparable industry in the region.  But we               cannot ignore the fact that this very  concern               provides for better facilities of earned leave               to a section of its employees when other terms               and  conditions  of service are  the  same  in               respect  of both the categories of  employees.               It  is  not  difficult  to  imagine  that  the               continuance of these two different  provisions               in  the  same  concern is likely  to  lead  to               dissatisfaction  and frustration  amongst  the               new employees." According to this Court, it was not right that there  should be discrimination amongst the workers in the same concern. Unfortunately  for us, we have not got any evidence  of  the provisions of leave prevalent in the two concerns which  are comparable  with  the appellant before us, viz.,  All  India General  and  Co-operative General Insurance  Cos.  but  the Tribunal  had  before it a comparative  statement  of  leave available  to  employees  in some other  concerns.   In  the

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United  Fire and General Insurance Co. privilege  leave  was allowed  for one month in a year with accumulation up to  75 days.  In Union Co-operative Insurance Co. it was one  month in  a  year  with accumulation up to  six  months.   In  the Hercules  Insurance  Co  Ltd. it was one  month  in  a  year simpliciter. We find ourselves unable to accept the contention of Mr. Sen that the Tribunal could not direct that the employees should have  leave  in excess of the limits specified in  the  West Bengal  Shops and Establishments Act, 1963.  As a matter  of fact,  the  employees were enjoying leave at  a  rate  which exceeded  the limits prescribed.  Taking all  these  matters into consideration, we think that the leave rules should  be modified  to  the  extent  that  privilege  leave  would  be allowable at the rare of 30 days for each completed year  of service  with a right to accumulate the same up to 60  days; and sick leave at the rare of 15 days per year with full pay with right to accumulate the same up to three months. The  award  shall stand modified as indicated above  and  in view of the divided success in this Court, we make no  order as to costs. V.P.S. Award modified. 613