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CASE NO.: Appeal (civil)  4637 of 2006

PETITIONER: Management of KSRTC Th. Chief Law Officer                

RESPONDENT: R. Krishna Reddy                                                         

DATE OF JUDGMENT: 01/11/2006

BENCH: S.B. Sinha & Markandey Katju

JUDGMENT: J U D G M E N T  [Arising out of S.L.P. (Civil) No. 24946 of 2005]

S.B. SINHA,  J :

       Leave granted.                  Appellant is a statutory corporation constituted under the Road  Transport Corporation Act, 1950.  It has its own scheme in terms whereof  gratuity is being paid at the rate of 30 days’ basic pay for each completed  year of service.  Government Servants are, however, entitled to gratuity  calculated on the basis of 15 days’ basic pay for each completed year of  service.  Such is the position also under the Payment of Gratuity Act, 1972  (for short "the Act").           Disputes and differences having arisen by and between the workmen  of the Corporation and the management, a settlement was arrived at on  17.07.1999.  The said settlement was valid for the period 1.01.1988 and  31.12.1991.  It expired on 31.12.1991, Clause (5) whereof postulated:

"Dearness Allowance         The rates of Dearness allowance shall be on  par with the rates sanctioned by the State  Government to its employees from time to time  and from the same date.  The enhanced Dearness  Allowance shall be paid in cash.

       If during the currency of this settlement, the  Government of Karnataka were to merge any  portion of Dearness Allowance presently being  paid to its employees, that portion of the Dearness  Allowance so merged will also be reckoned at  appropriate levels by the corporation for  determining the Dearness Allowance, House Rent  Allowance, City Compensatory Allowance and  Gratuity payable to the employees of the  corporation, but shall not be reckoned for other  purposes."

        The State of Karnataka merged a part of the Dearness Allowance  with the basic pay wherefor a Government Order being Government Order  No. FD 27 SRS 95 was issued on 28.11.1995 which is to the following  effect:

"The question of revision of pensionery benefits in  respect of Government Servants has been  examined by Government in the light of the  recommendations made by the Karnataka State

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Fourth Pay Commission and the decision taken by  the Government of India on the Interim  Recommendations of the Fifth Central Pay  Commission.  Accordingly, the following orders  are issued.

2.      Government are now pleased to order that  Dearness Allowance sanctioned upto the Average  All India Consumer Price Index (A.I.C.P.I.)  1201.66 in Government order No. FD 29 SRP 93,  dated 30th October, 1993 as indicated below, shall  be reckoned as emoluments for the purpose of  retirement gratuity/ death gratuity under the  Karnataka Civil Services Rules in respect of State  Government Employees who retire or die on or  after 28th November, 1995:

Pay Range Rate of Dearness  Allowance to be added  to pay for calculating  gratuity 1. Basic pay upto 3500  per month 90% of basic pay 2. Basic pay between  Rs. 3401 and upto Rs.  600 per month 67% basic pay subject to  minimum of Rs. 3150  per month 3. Basic pay above Rs.  6000 per month 58% of basic pay subject  to minimum of Rs. 4020  per month"

                The appellant, however, contends that actual merger of pay had taken  place on 7.01.1999 with retrospective effect from 1.04.1998 wherefor a  Government Order was issued.  The Board of Directors of the appellant in  its meeting held on 14.01.1999 adopted a resolution in the following terms:

"The Principal Secretary, Finance Department  stated that the provisions of the Gratuity Act, 1972  has to be followed as far as the ceiling on payment  of gratuity is concerned.  The legal position in this  regard may be examined in the context of the  settlements reached and appropriate necessary  action taken.

       After considering the matter in detail the  Board of Directors resolved as hereunder:

Resolution No. 7808

       Approval is accepted for the payment of  gratuity to the employees of the Corporation from  28.11.1995 in terms of the Gratuity Act 1972 if it  is more advantageous."

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       The Board of Directors of the appellant also adopted the following  resolution on 26.06.1999:

"Approval is accorded to merge the Dearness  Allowance as contemplated in Government Order  No. FD 48 SRP 98 dated 7.1.1999 into the Basic  Pay of the employee of the Corporation w.e.f.  1.04.1998 by treating the same as Basic D.A. for  calculation of Gratuity."

       The dispute between the parties centers round the issue as to whether  for the purpose of computation of the amount of gratuity, the order dated  28.11.1995 would be attracted or not.   

       Respondent herein was appointed on 4.06.1959 as a conductor.  He  retired as traffic inspector on 30.03.1996.  He claimed gratuity in terms of  the said Government Order dated 28.11.1995.  The same having been denied  to him, he filed an application before the Assistant Labour Commissioner  and Controlling Authority under the Act.  By an award dated 6.02.1998, he  was held to be entitled thereto.   An appeal thereagainst was preferred by the  appellant.  The Appellate Authority in terms of its order dated 15.09.1998  allowed the said appeal.  The respondent filed a writ petition before the High  Court.  A learned Single Judge by reason of a judgment and order dated  13.10.2003 allowed the said writ petition inter alia holding:

"In so far as the other contention that the  Government Order only speaks adding Dearness  Allowance to the basic pay wherein Clause to the  basic pay wherein Clause (5) refers to merger of  Dearness Allowance with basic pay is concerned, I  do not find any substance.  The word ’adding of  basic pay’, ’adding of Dearness Allowance’ or the  word ’merger of Dearness Allowance’ with the  basic pay are synonymous.  There is no difference  in meaning with those two phrases.  The ultimate  result is the same if such hyper technical  interpretation of these phrases is accepted it would  result in great injustice to one of the parties to the  contract.  Moreover, they are not words used in  any status.  They are words used by the  Government at one place and the respondents in  their order.  Moreover, in the subsequent order  passed by the KSRTC they have understood the  said word as merger and has given benefit to its  employees.  Under the circumstance, I do not find  any merit in the said contention also."

       An intra-court appeal filed thereagainst by the appellant was  dismissed.

       Mr. G.E. Vahanvati, learned Solicitor General appearing on behalf of  the appellant, principally raised two contentions in support of this appeal:

(i)     The actual merger having taken place on 7.01.1999 upon revision  of the scale of pay, the purported settlement dated 28.11.1995  could not have been construed differently. (ii)    In any event, the purported merger of Dearness Allowance in  respect of the employees of the State was not binding on the  Corporation.

       Mr. L. Nageshwara Rao, learned senior counsel appearing on behalf  of the respondent, on the other hand, submitted that the amount of gratuity is  required to be calculated in terms of Section 5 of the Act and in that view of

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the matter the rate prescribed therefor must be computed at par with the  settlement.  The High Court, the learned counsel would contend, cannot be  said to have committed any illegality in arriving at the said finding.

       The Act was enacted to provide for a scheme for payment of gratuity  to employees engaged in factories, mines, oilfields, plantations, ports,  railway companies, etc. and for matters connected therewith or incidental  thereto.  Gratuity is payable in terms of Section 4 of the Act to an employee  inter alia on his superannuation after he has rendered continuous service for  not less than five years.

       Sub-section (2) of Section 4 of the Act envisages that for every  completed year of service, the employer shall pay gratuity to an employee at  the rate of 15 days’ wages based on the rate of wages last drawn by the  employee concerned.  Sub-section (3) of Section 4, however, puts a ceiling  on the amount of gratuity being Rs. three lakhs and fifty thousand.  Sub- section (5) of Section 4 inter alia provides that the provisions contained  therein shall not affect the right of an employee to receive better terms of  gratuity under any award or agreement or contract with the employer.

       What is, therefore, payable by way of gratuity in terms of the scheme  was 30 days wages for each completed year of service.   

       ’Wages’ has been defined in Section 2(s) of the Act in the following  terms:

""wages" means all emoluments which are earned  by an employee while on duty or on leave in  accordance with the terms and conditions of his  employment and which are paid or are payable to  him in cash and includes dearness allowance but  does not include any bonus, commission, house  rent allowance, overtime wages and any other  allowance."

       We have noticed hereinbefore that the Government of Karnataka in  terms of Government Order dated 28.11.1995 inter alia directed that 90% of  Basic Pay to be added to pay for calculating gratuity.  If the basic pay of an  employee was upto Rs. 3500/- per month and was drawing a Dearness  Allowance of Rs. 2000/-, what was to be added was the 90% of the Dearness  Allowance which was being paid.  If 90% of the Basic Pay as Dearness  Allowance is to be added to the basic pay, the employee became entitled to   higher wages on the basis thereof.  It is in that sense the question of  application of the merger of Dearness Allowance with the scale of pay arose  for all intent and purport.  As was rightly held by the learned Single Judge,  different terminologies used did not make any material difference.  Section 4  of the Act itself contemplates implementation of a settlement.  Settlement,  therefore, entered into by and between the parties was required to be  interpreted having regard to the intention of the parties.  What was  contemplated by the parties was that the rates of Dearness Allowance would  be at par with the rate sanctioned by the State Government to its employees  from time to time and from the same date.  It was never contemplated that a  different amount of gratuity shall be payable to an employee who retires  prior to the revision of scale of pay although the terms of the settlement are  applicable to his case.

       What was necessary to be taken into account was the merger of any  portion of the Dearness Allowance with pay which was being paid to its  employees.  In such an event that portion of the Dearness Allowance was  also to be reckoned at appropriate level by the appellant for determining the  quantum of Gratuity payable to its employees.  The said settlement was  arrived at for calculating amount of gratuity payable to the employees of the  appellant and not for any other purpose.   

       It is, therefore, not a case where the appellant could legitimately raise

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a contention that any enhancement in the emoluments to its employees by  the State would not automatically enhance the emoluments of the employees  of the appellant.  It has been contended before us that the effect of the  merger and addition of Dearness Allowance would be different.  It may be  so.  But, having regard to the fact of the present matter and the definition of  ’wages’ under the Act, we need not go into the said question.  

       We have noticed hereinbefore that the contention may ordinarily be  applicable to a case of merger of the basic pay vis-‘-vis adding of Dearness  Allowance to basic pay, but, herein the same would not make any  substantive difference for the purpose of payment of gratuity keeping in  view the definition of "wages" contained in Section 2(s) of the Act.  It is not  a case where the scheme of the Corporation and the provisions of the Act are  inconsistent with each other.   

       In Beed District Central Co-operative Bank Ltd. v. State of  Maharashtra & Ors. [2006 (10) SCALE 40], it was laid down:

"\005Undoubtedly, the Payment of Gratuity Act is a  beneficial statute.  When two views are possible,  having regard to the purpose, the Act seeks to  achieve being a social welfare legislation, it may  be construed in favour of the workman.  However,  it is also trite that only because a statute is  beneficent in nature, the same would not mean that  it should be construed in favour of the workmen  only although they are not entitled to benefits  thereof."

       For the reasons aforementioned, we are unable to agree with the  submissions made by the learned Solicitor General that the consequences of  merger in a case of this nature shall be different in case of addition to the  Dearness Allowance in the scale of pay.

       Keeping in view the facts and circumstances of this case, we are of the  opinion that it is not a case where this Court should take a view different  from that of the High Court.  The Appeal is dismissed with costs.  Counsel’s  fee assessed at Rs. 10,000/-.