1964 (11) TMI 79 - SC - Indian Laws

it was held that gratuity is a lump sum payment considered necessary for an orderly and humane elimination from the industry of superannuated or disabled employees, who but for such retiring benefits would continue in employment even though they function inefficiently.

Summary

Issues:
- Introduction of a scheme of gratuity in a company
- Financial condition and profit-making capacity of the company
- Comparison of different retirement benefits like gratuity, pension, provident fund, and compensation for retrenchment
- Methods of fixing terms of a gratuity scheme based on industry-cum-region or units

Analysis:
1. The Industrial Court introduced a scheme of gratuity in a company, following a demand by the workers' union. The company resisted the demand, citing past losses and financial instability. The Industrial Court framed a gratuity scheme, considering the financial stability and burden on the company, estimating an annual burden of Rs. 50,000 to Rs. 60,000. The court found that the company's financial condition justified the introduction of the scheme in line with other mills in the region.

2. The company argued against the gratuity scheme, highlighting its old machinery, borrowing from financial corporations, and existing contributions to provident fund and annual bonus payments. The company contended that it lacked the capacity to bear additional financial burdens. The court considered the company's financial position, profit-making capacity, and ability to provide retirement benefits in assessing the demand for gratuity.

3. The judgment emphasized that gratuity, pension, provident fund, and compensation for retrenchment are distinct benefits that can coexist. It explained the purpose of gratuity as an "efficiency device" for the orderly retirement of employees, leading to better workforce management and industry morale. The court clarified that multiple retirement benefits can be provided based on the employer's financial ability.

4. Two methods of fixing terms for a gratuity scheme were discussed: industry-cum-region or unit-based. The court stressed the importance of considering the financial position and profit-making capacity of the employer when determining the terms of the gratuity scheme. It noted that the company should align with industry practices in the region while assessing the burden of the scheme on its finances.

5. The court analyzed the company's financial history, including profits, losses, depreciation reserves, and borrowings. It considered the company's ability to repay loans, renew machinery, and maintain a general reserve. The judgment concluded that the company's financial stability, reserve funds, and projected retirements supported the implementation of the gratuity scheme. The court upheld the Industrial Court's decision to introduce the gratuity scheme, dismissing the company's appeal.

This detailed analysis of the judgment highlights the key issues surrounding the introduction of a gratuity scheme in a company and the considerations related to the company's financial capacity and industry practices.