http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 4  

CASE NO.: Appeal (civil)  2936 of 2002

PETITIONER: Rajasthan Welfare Society                                        

RESPONDENT: State of Rajasthan                                               

DATE OF JUDGMENT: 07/04/2005

BENCH: Y.K.Sabharwal & Tarun Chatterjee

JUDGMENT: J U D G M E N T [With SLP (C) No.21640 of 2003, Civil Appeal Nos.2934, 2935 &  2940 of 2002, SLP (C) No.4544 of 2004, Civil Appeal No.6896 of  2003 and Civil Appeal Nos.7432 & 7433 of 2004]

Y.K. Sabharwal, J.

       Gratuity is to be paid to an employee on the termination of his  employment in terms of the provisions of the Payment of Gratuity Act,  1972.  The question for determination in the present case is whether the  amount of gratuity payable to the employees of the aided educational  institutions has to be taken into consideration or not for determining the  amount of grant-in-aid.  The question has to be examined in the context of  Rajasthan Non-Government Educational Institution Act, 1989 (for short,  ’the Act’) which came into force with effect from 1st January, 1993.         The power of the State Government to make rules is contained in  Section 43 of the Act.  Section 43 of the Act, inter alia, provides that the  Rules may provide for the terms and conditions for grant of recognition to  Non-Government Educational Institutions.  Rules can also be framed for  the giving of grants-in-aid.  In exercise of powers conferred by Section 43  and all other powers enabling the State Government in this behalf, Rules  called the Rajasthan Non-Government Educational Institutions  (Recognition, Grant-in-Aid and Service Conditions Etc.) Rules, 1993 (for  short, ’the Rules’) have been made.   The appellant is running an aided educational institution.  The  expression ’aided institution’ has been defined in Section 2(b) of the Act to  mean a recognized institution which is receiving aid in the form of  maintenance grant from the State Government.  The Act has been enacted  to provide for better organization and development of education in the non- Government Educational Institutions in the State of Rajasthan.  The  expression ’recognised institution’ is defined in Section 2(q) of the Act to  mean a Non-Government Educational Institution affiliated to any University  or recognized by the Board, Director of Education or any officer authorized  by the State Government or the Director of Education in this behalf.  The  educational institution being run by the appellant is a recognized institution.         Section 2(a) defines ’aid’ to mean any aid granted to a recognized  educational institution by the State Government.  The educational  institution of the appellant has been granted aid within the meaning of the  Act.  The expression ’employee’ includes a teacher and every other  employee working in a recognized institution.  The expression ’salary’ has  been defined in Section 2(r) as follows : " ’Salary’ means the aggregate of the emoluments  of an employee including dearness allowance or  any other allowance or relief for the time being  payable to him but does not include  compensatory allowance."

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 4  

       Section 7 of the Act provides for grant-in-aid to recognized  institutions.  It, inter alia, provides that no aid shall be claimed by an  institution as a matter of right.  Section 7(4) provides that "the aid may  cover such part of the expenditure of the institution as may be prescribed".   Section 16 of the Act enables the State Government to regulate the terms  and conditions of employment.  It, inter alia, provides that the State  Government may regulate the recruitment and conditions of service,  including conditions relating to qualifications, pay, gratuity, insurance, age  of retirement, entitlement of leave, conduct and discipline, of persons  appointed as employees of aided institutions in the State.  Section 29 of  the Act provides that the scales of pay and allowances except  compensatory allowances with respect to all the employees of an aided  institution shall not be less than those prescribed for the staff belonging to  similar categories in Government institutions.  The expression  ’compensatory allowance’ is defined in Section 2(d) to mean an allowance  granted to meet personal expenditure necessitated by the special  circumstances in which duty is performed and shall include a travelling  allowance but shall not include a sumptuary allowance nor the grant of a  free passage to or from any place outside India. Chapter III of the Rules deals with ’AID, ACCOUNTS AND AUDIT’,  containing Rules 9 to 22.  Rule 9 relates to the sanction of grants-in-aid  and reads as under : "Rule 9. Grants\027The State Government may at  its discretion sanction following grants\027 (1)     Maintenance or recurring grant. (2)     Non-recurring grant towards equipments,  building etc. (3)     Ad hoc, non recurring or recurring grant to  an institution which is of an all India  Character and its project and activities  have been approved by the Central or  State Government on such terms and  conditions as it may deem fit to impose. (4)     Such other grants as may be sanctioned by  the Government from time to time."

Rule 10 provides for general conditions governing grant-in-aid.  It,  inter alia, provides that every institution which applies for grant-in-aid shall  be deemed to have accepted its obligation to comply with the conditions  laid therein, one of it being that the Management shall appoint teachers  and other staff and shall follow the conditions of service, as laid down in  the Rules.  Rule 11 deals with the procedure for grant-in-aid.  Rule 13  deals with the assessment of annual recurring grant.  It, inter alia, provides  that annual recurring grant will be given on the basis of estimated  expenditure of the current year and be subject to adjustment from the grant  payable in the next year.  It     that the approved expenditure shall be  arrived at according to the Rules and such other instructions that may be  issued from time to time.  Rule 14 deals with approved expenditure and to  the extent relevant for the present case reads as under : Rule 14. Approved Expenditure\027Approved  expenditure referred to in Rule 13 above, shall  relate to the following items only\027All the items  from (a) to (v) mentioned below will form  component ’A’ of the admissible items of the  expenditure. (a)     Actual salary, and provident fund  contribution not exceeding 8.33% in respect of  teaching and non-teaching staff. (b) to (v)\005\005.."

       Note 2 appended to Rule 14 is relevant for the present purposes and  reads thus :

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 4  

"Note.\0272. Charges on account of contribution  made by the Institution to a pension fund or a  gratuity scheme or on account of the pension or  gratuity paid to former teachers are ordinarily not  admitted for the purpose of grant-in-aid unless the  Rules on the subject are approved by  Government; Provided that in the case of staff obtained on lent  services from any State Government or  Government of India, pension and leave salary  contribution shall be allowed as approved  expenditure."

       Rule 82 provides that the employees of the aided educational  institutions shall be entitled to gratuity as payable under the Payment of  Gratuity Act, 1972, as amended from time to time.  

The Division Bench of the High Court by the impugned judgment on  construction of the Act and the Rules, has come to the conclusion that the  State Government is not liable to reimburse the aided institution for the  expenditure incurred by it on payments of gratuity to its employees as the  said amount is not a part of the approved expenditure.  The appellant  running the educational institution has challenged the correctness of the  view taken in the impugned judgment reversing the decision of learned  Single Judge.         The entitlement of the employees of the aided educational institution  to gratuity cannot be called in question in view of the provisions contained  in Section 16 of the Act and Rule 82 made by the State Government in  exercise of its rule making power.  The teachers may not be the  employees within the meaning of definition of employee as defined in the  Payment of Gratuity Act, 1972 but that is of no relevance in view of Section  16 and Rule 82.  The decision in Ahmedabad Pvt. Primary Teachers’  Association v. Administrative Officer & Ors. [(2004) 1 SCC 755] relied  upon by learned counsel for the appellant for the proposition that the  teachers are not covered by the definition of employees under the Gratuity  Act renders no assistance in the present case to the appellant in view of  benefit of the said Act having been extended to the employees of the aided  educational institutions.  The definition of employee under the Act includes  teachers and every other employee working in a recognized institution.   We are unable to accept the contention that the teachers of non- Government aided educational institutions are not entitled to gratuity.  The  appellant’s liability to pay the gratuity under Section 4 of the Gratuity Act  cannot be doubted.  The only question is whether appellant is entitled to  include the proportionate amount of gratuity in the approved expenditure  for the purposes of computation of grant in aid.  For this purpose, we have  to consider the provisions of the Act and the Rules.         Section 7 of the Act stipulates that no aid can be claimed as a matter  of right and the aid may cover such part of the expenditure of the institution  as may be prescribed.  The prescribed expenditure is as contained in the  Rules.  Under Rule 14, the approved expenditure can relate to only items  from (a) to (v) mentioned therein.  It is nobody’s case that the expenditure  on gratuity falls under items (b) to (v).  Under Item (a) only expenditure on  actual salary and provident fund contribution not exceeding 8.33% in  respect of teaching and non-teaching staff can be included.  The  contention urged is that the gratuity is part of salary.  We are unable to  agree.  The amount to be paid as a gratuity in terms of Section 4 of the  Gratuity Act, under no circumstances, can be said to be a part of ’actual  salary’ as postulated by Rule 14.  Further, some of the items (b) to (v),  wherever recurring or non-recurring expenditure is to form part of approved  expenditure, specifically provide for it.  Admittedly, the expenditure on  gratuity does not fall under Items (b) to (v) as the only contention urged  was that it falls under Rule 14(a).         The position becomes further clear on a plain reading of Note 2  appended to Rule 14.  It is clear that ordinarily the charges on account of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 4  

payment of gratuity paid to former teachers are not admitted for the  purpose of grant-in-aid unless the Rules on the subject are approved by  the Government.  The words ’the rules on the subject’ in Note 2 cannot be  interpreted to mean rule contained in other part of the Rules, namely, Rule  82.  We are unable to accept the contention that Rule 82 would be the rule  on the subject approved by the Government.  If Rule 82 is to be interpreted  as a rule approved by the Government to contribute the amount of gratuity  while computing grant-in-aid, the question of appending Note 2 would not  have arisen.  Clearly, Note 2 refers to Rules framed by Non-Government  Educational Institutions which are to be approved by the Government and  not the Government itself making the Rules and approving the same.  As  already stated, Rule 82 only makes it obligatory for aided educational  institutions to pay gratuity to their employees in accordance with the  Gratuity Act.           The gratuity cannot be termed to be an emolument for the time  being payable to the employees so as to come within the definition of  salary defined in Section 2 (r) of the Act.  Further, Rule 14 uses the word  ’actual salary’.  Be that as it may, it seems clear the non-recurring payment  of this nature cannot be included in the definition of salary.  Gratuity is  payable at the time of retirement/termination of the employment.  Reliance  on the decision in the case of Metal Box Company of India Limited v.    Their Workmen [(1969) 1 SCR 790] can render little assistance to the  appellant.  It is a case under Payment of Bonus Act.  It was only dealing  with accountancy principles.  Observations were made that an estimated  liability under the gratuity schemes even if it amounts to a contingent  liability and is not a debt under the Wealth Tax Act, if properly  ascertainable and its present value is fairly discounted, is deductible from  the gross receipts while preparing the profits and loss account.  In trading  circles or in rule or direction in the Bonus Act, there was no prohibition  from such a practice.  The question in that case was whether while working  out the net profits the trader can provide from his gross receipts his liability  to pay a certain sum for every additional year of service which he receives  from his employees.  It was answered in affirmative.  If such liability was  properly ascertainable, it was possible to arrive at a proper discounted  value.  This decision, in our view, is not relevant to determine the point in  issue in the present case.         Further, gratuity cannot be included in the approved expenditure as  under Rule 9 the State Government can sanction the grants under four  Heads provided therein and gratuity does not fall under any one of them.  It  is not claimed that the gratuity falls under Heads 2 to 4.  The Head No.1 is  ’maintenance or recurring grant’.  Admittedly a gratuity cannot come under  the category of maintenance.  It is also not a recurring grant as already  noticed hereinbefore.  It is, thus, clear that payment of gratuity cannot  come under any of the four categories mentioned in Rule 9.         In view of the aforesaid, the gratuity within the meaning of the Act  and the Rules cannot form part of recurring grant.  It is not includable as  part of approved expenditure for the purposes of computing  the amount of  grant payable to the appellant.  In this view, communication dated 26th  May, 1994 of Government of Rajasthan to the effect that the Rules do not  provide for grant-in-aid on amount of gratuity, the same being not included  in the approved expenditures, cannot be held to be illegal.  This will,  however, not affect the rights of the employees to get the gratuity from the  concerned institution.   Before parting, we wish to note that if representations are made by  aided Non-Government Educational Institutions, the State Government  would consider sympathetically the question of the gratuity amount  payable to the employees being taken into consideration for the purpose of  computing the amount of grant-in-aid.  We, however, clarify that pending  making of such representation and its consideration, the payment of  gratuity to the employees shall not be delayed.         In view of the above, we find no infirmity in the impugned judgment  of the High Court and, therefore, the appeals and the special leave  petitions are dismissed.