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PETITIONER: THE AKOLA ELECTRIC SUPPLY CO-

       Vs.

RESPONDENT: J. N. JARARE & ORS.

DATE OF JUDGMENT: 25/03/1963

BENCH: GUPTA, K.C. DAS BENCH: GUPTA, K.C. DAS GAJENDRAGADKAR, P.B. WANCHOO, K.N.

CITATION:  1963 AIR 1721            1964 SCR  (2) 513

ACT: Industrial Dispute-State Electricity Board taking over  from appellant  company  on the expiry of  license-Award  framing scheme  for payment of gratuity to  employees-If  justified- Central  Provinces and Berar Industrial Disputes  Settlement Act, 1947 (C. P. and Berar Act XXIII of 1947), ss. 38 (a).

HEADNOTE: The  appellant  company was a licensee for  supplying  elec. tricity.   The  State  Electricity Board  had  by  a  notice intimated   its  intention  to  purchase   the   appellant’s undertaking on the expiry of its license.  Two days prior to the  expiry  of the licence the Industrial Court  at  Nagpur framed a scheme for payment of gratuity to the employees  of the  appellant  company  with effect from the  date  of  the order.   On application by the appellant company under  Art. 227  of the Constitution the High Court of Nagpur set  aside the Industrial Court’s order and remanded the matter for the reconsideration.  After remand the Industrial Court came  to the conclusion that the appellant company was in a  position to pay gratuity and made a fresh award framing a scheme  for payment  of  gratuity  to its employees at  the  rate  of  1 month’s average wage.  This award was made more than a  year after  the  company had closed its  business.   The  present appeal is by way of special leave granted by this Court. The main contention in the appeal was that the Tribunal  was not  justified in imposing on the company a gratuity  scheme at  a  time  when  it had already ceased  to  carry  on  its business. Held  that  the  gratuity schemes are  always  made  in  the expectation  of  the industry continuing to function  for  a long  time  to  come and hence the  Industrial  Court  acted wrongly  in  framing  any gratuity  scheme  for  payment  of gratuity by the company to its employees, Indian  Hume Pipe Co. v. Its Workmen, [1960], 2 S. C. R.  32 and  Bharatkhand Textile Mfg., Co., Ltd. v.  Textile  Labour Association, [1960] 3 S.C.R. 329, distinguished. 514

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JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 637 of 1962. Appeal by special leave from the award dated April 29,  1961 of  the  State  Industrial Court  at  Nagpur  in  Industrial Reference No. 13 of 1959. M.   C,  Setalvad, Vallbhdas Mehta and Sardar  Bahadur,  for the appellant. S.A. Sohni, Swarup Khanduja Lalit Kumar adn Ganpat Rai,  for the respondents. 1963.  March 25.  The judgment of the Court was delivered by DAS  GUPTA  J.-This appeal by,special leave  is  against  an award of the Industrial Court at Nagpur tinder s. 38 (a)  of the   Central  Provinces  and  Berar   Industrial   Disputes Settlement  Act, 1947 dated April 29, 1961.  By  an  earlier award  dated December 4, 1959, the Industrial Court  ordered the  payment of gratuity to the employees of  the  appellant Company on certain rates.  The award was to come into  force from  December  4, 1959.  OD an application by  the  Company under  Art. 227 of the Constitution, the Nagpur  High  Court set  aside  the industrial Court’s order  and  remanded  the matter  for reconsideration of the question after  examining the  financial condition of the Company.  After  remand  the Industrial  Court took evidence of both parties  as  regards the  financial  condition  of the Company and  came  to  the conclusion  that the Company was in a very  sound  financial position  and  could easily bear the burden  of  payment  of gratuity  to  the  extent  of Rs.  50,000/-  or  even  more. Accordinglyv,  the  Industrial  Court  made  a  fresh  award directing the payment of gratuity to the Company’s employees at the rate of 1 month’s average wage the average wage to be calculated for the period December 1, 1-958 to November  30, 1959 to every  515 employee  who  had to his  credit  uninterrupted  continuous service  of not less than five years on termination  of  his service, except by dismissal on account of misconduct.   The award was directed to come into force from April 29,1961. The Appellant Company was a licensce for supplying  electric energy  to the public within the area approximating  to  the Municipal limits of Akola.  The license expired on  December 6, 1959.  Prior,to this the State Electricity Board had by a notice  dated November 27, 1957, intimated its intention  to exercise  its  option  to purchase the  undertaking  on  the expiry  of the license.  It was after this notice  had  been served  and it was known that the Company would  be  closing its  business  on  December  6, 1959,  that  the  claim  for gratuity  in respect of which the Industrial Court has  made its award, was first made. -Indeed, the very application for referring this and other disputes for arbitration  contained the  frank  statement that it was in view of  the  impending closure  of business that the claim for gratuity  was  being made.  It is interesting to notice that the earlier award by tile  Industrial  Court was made only two  days  before  the Company’s license expired and the business was taken over by the  Bombay Electricity Board.  The award now  under  appeal was  made more than a year after the Company had closed  its business. The main contention urged before us in support of the appeal is  that the Tribunal was not justified in imposing  on  the Company  a  gratuity scheme at a time when  it  had  already ceased to carry on its business.  It is argued that gratuity schemes  are  planned  on  a long  term  basis,  the  ruling principle being to make the employer to pay retiral benefits to such of its employees as, retire from year to year.   The framing  of  a gratuity scheme when an industry  is  on  the

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verge of closure or after it has closed is, it 516 is  urged,  wholly unjustified.  In our  opinion,  tkere  is considerable force in this contention. It  has  been  laid down by this Court  that  the  statutory provision for payment of retrenchment compensation is no bar to  the  framing of a gratuity scheme.   Thec  question  was fully  considered by this Court in Indian Hume Pipe  Co.  v. Its  Workmen  (1), where this Court pointed out  that  while gratuity  is  intended to help workmen after  retirement  to whatever  cause the retirement may be due  to,  retrenchment compensation  is intended to give relief for the sudden  and unexpected  termination  of employment  by  givinog  partial protection to the retrenched person and his family to enable them  to tide over the hard period of unemployment.  It  has also been held by this Court in the Bharatkhand Textile Mfg. Co. Ltd, v. Textile labour Asson. (2), that the existence of a  Provident Fund Scheme is also no bar to the provision  of further retiral benefit by way of gratuitv scheme. Learned Counsel for the respondent seems to think that these cases somehow supported his contention that the fact that an industry is going to close or has actually closed is no  bar to  a framing of gratuity scheme for its employees.  We  are unable  to see however anything in these decisions  of  this Court to assist such a plea.  In neither of these cases  nor in any other case that we know of had this Court to consider the  question of a gratuity scheme in an industry which  ’is going  to  close  in the near future  or  has  already  been closed.   Indeed, we know of no case in which an  Industrial Tribunal  has ever framed a gratuity scheme for an  industry which was not expected to carry on or has ceased to carry on its  business.   In  all the cases  that  have  come  before Industrial Tribunal or this Court gratuity schemes asked for or  allowed have been in industries which were  expected  to carry on fora (1) [1960] 2 S.C.R. 32. (2) [1960] 3 S.C.R. 329,  517 fairly  long  time.   One of  the  important  factors  which requires  consideration  in deciding on the propriety  of  a scheme  of gratuity is the ability of the industry  to  bear the  additional  financial  burden  and  in  deciding   this question it has been repeatedly pointed out, the burden from year to year has to be considered after taking into  account the average number of retirements likely to take place in  a year.   Thus in the Bharatkhand Textile Mfg. case (1),  this Court  in discussing the considerations that arise  in  such matters, said:-               "........  there can be no doubt  that  before               framing  a  Scheme  for  gratuity   industrial               adjudication has to take into account  several               relevant facts; the financial condition of the               employer,  his  profit-making  capacity,   the               profits earned by him the past, the extent  of               his   reserves   and  the   chances   of   his               replenishing  them as well as the  claims  for               capital  invested  by  him,  these  and  other               material  considerations may have to be  borne               in  mind  in  determining  the  terms  of  the               gratuity  scheme ............ it appears  also               to be well recognised that though the grant of               a  claim  for gratuity must  depend  upon  the               capacity  of the employer to stand the  burden               on   a  long  term  basis  it  would  not   be               permissible to place undue emphasis either  on

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             the  temporary  prosperity  or  the  temporary               adversity  of  the emyloyer.   In  evolving  a               long-term  scheme a long-term view has  to  be               taken  of the employer’s  financial  condition               and  it  is  on such a basis  alone  that  the               question  as  to whether a  scheme  should  be               framed or not must be decided......" These  observations  emphasise the  position  that  gratuity schemes are always made in the expectation of the-  industry continuing to function for a long time to come. (1)  [1960] 3 S.C.R, 329 518 It has to be noticed that the provision for gratuity  scheme is  not  based  on any statutory  enactment,  but  has  been evolved  by  industrial adjudication as a  step  to  achieve social  justice.  In doing so, industrial  adjudication  has proceeded  on the basis that only a small percentage of  the workmen  retire in any particular year and so the  provision for paying gratuity to retiring workmen would ordinarily  be not  an unreasonable burden for the employer to be asked  to bear. The position is materially altered however when the industry is  expected  to  close  in the  immediate  future,  or  has actually closed.  In such a case the entire body of  workmen will  "retiring"  at  one  and the  same  time  so  that  in substance,  though  not in name, the provision  of  gratuity would  be equivalent to the grant of retrenchment  compensa- tion,  in addition to what is provided for in  the  statute. We  can find no justification for this in the principles  of social justice. We have therefore come to the conclusion that the Industrial Court acted wrongly in directing any gratuity to be paid  by the Company to its employees. We  accordingly  allow the appeal, and set aside  the  award made by the Industrial- Court.  There will be no order as to costs.                              Appeal allowed.  519