2020 (5) TMI 33 - SC - Indian Laws

Payment of Gratuity - percentage of Basic Salary adjusted towards Gratuity - It was submitted that the emolument sheets issued to the respondent from time to time indicated that a sum of 4.81% of his basic salary had been adjusted towards gratuity; in the year 2007 the respondent was promoted to the post of Chief Executive Officer and his emoluments had almost doubled, and that is is entitled to be paid for the additional amount - HELD THAT - The intent of the Trust Deed and the Scheme is thus clear that the governing principles as regards the amount to be calculated and the rates to be applied have to be in accordance with the provisions of the Act, if an employee is covered by the provisions of the Act. If the amount is to be so calculated according to the provisions of the Act, in case of employees covered by the provisions of the Act, there is no other alternative which is offered by the Company or which is part of any award or agreement or contract entered into between the employer and employees. Thus, no reliance could be placed on Section 4(5) of the Act to submit that the employees are entitled to some greater advantage than what is available under the Act. As stated earlier, for Section 4(5) to apply there must be two alternatives, one in terms of the Act and one as per the award or agreement or contract with the employer - The Scheme does not therefore offer to the employees covered by the Act any other alternative apart from what is payable under the Act. The Trust Deed and the Scheme were executed and formulated in the year 1979 when the wage-bracket was a definite parameter for an employee to be covered under the Act. The intent of the Trust Deed and the Scheme has to be understood in that perspective. The idea was not to afford to the employees who are covered by the provisions of the Act, a package better than what was made available by the Act, but it was to extend similar benefit to those who would not be covered by the Act. In Beed District Central Cooperative Bank Ltd. 2006 (6) TMI 507 - SUPREME COURT , the gratuity scheme provided by the employer had better rate for computing gratuity but the ceiling limit was lower; whereas the entitlement under the provisions of the Act was at a lesser rate but the ceiling prescribed by the Act was higher than what was provided by the employer. This Court laid down that an employee must take complete package as offered by the employer or that which is available under the Act and he could not have synthesis or combination of some of the terms under the scheme provided by the employer while retaining the other terms offered by the Act - The High Court in the present case, however, distinguished said decision on the ground that the Scheme of the appellant itself provided for the rates as per Section 4(2) of the Act but without upper limit under Section 4(3) of the Act . In our view, the High Court failed to consider the effect and impact of Rule 6(b) of the scheme. The Single Judge did refer to said Rule 6(b) but found that the Rule was so broadly drafted that it could not be construed to contemplate the ceiling limit under Section 4(3) of the Act. The true import of Rule 6(b) which gets further emphasized by stipulation in the Appendix to the Scheme was lost sight of by the authorities under the Act and by the High Court. If an employee is covered by the provisions of the Act, according to said Rule 6(b), the amount of gratuity has to be calculated in accordance with the provisions of the Act - in case of such an employee the gratuity has to be calculated in accordance with the provisions of the Act and while so calculating, not only the basic principle available in Section 4(2) as to how the gratuity is to be calculated must be applied but also the ceiling which is part of Section 4(3) must also apply. The rates and the modalities of calculations of gratuity as available under the Scheme of the Rules are to apply only to those employees who are not covered by the provisions of the Act. Thus, the Authorities under the Act and the High Court erred in accepting the claim preferred by the respondent. We hold that the appellant was right in going by the provisions of the Act in the present matter and by the ceiling prescribed under Section 4(3) of the Act. Any mistakes on its part in making some extra payments to some of the other employees would not create a right in favour of others in the face of the stipulations in the Trust Deed and the Scheme.

Summary

Issues Involved:
1. Applicability of the Payment of Gratuity Act, 1972 (the Act) and its ceiling limit.
2. Interpretation of the Trust Deed and Gratuity Scheme.
3. Entitlement to better terms of gratuity under Section 4(5) of the Act.
4. Validity of the Claim Petition and decisions of the Authorities under the Act.
5. Impact of historical amendments to the Act.

Detailed Analysis:

1. Applicability of the Payment of Gratuity Act, 1972 (the Act) and its Ceiling Limit:
The primary issue was whether the respondent was entitled to gratuity exceeding the statutory ceiling of ?10 lakhs under Section 4(3) of the Act. The appellant argued that the respondent was covered by the Act and subject to this ceiling. The respondent contended that he was entitled to better terms under Section 4(5) of the Act, which allows for better terms of gratuity under any award, agreement, or contract.

2. Interpretation of the Trust Deed and Gratuity Scheme:
The Trust Deed and Gratuity Scheme were examined to determine if they provided for gratuity payments exceeding the statutory limit. The Trust Deed, executed in 1979, aimed to provide gratuities under the Act and the company's scheme. Rule 6(b) of the Scheme stipulated that for employees covered by the Act, gratuity must be calculated according to the Act's provisions. The Scheme divided employees into two categories: those covered by the Act and those who were not. The Scheme did not offer an alternative to the statutory provisions for those covered by the Act.

3. Entitlement to Better Terms of Gratuity under Section 4(5) of the Act:
Section 4(5) of the Act allows for better terms of gratuity under any award, agreement, or contract with the employer. The respondent claimed entitlement to better terms under this provision. However, the Court found that the Trust Deed and Scheme did not provide an alternative to the statutory provisions for employees covered by the Act. The Scheme was intended to extend similar benefits to those not covered by the Act, not to provide better terms for those already covered.

4. Validity of the Claim Petition and Decisions of the Authorities under the Act:
The respondent's Claim Petition was initially allowed by the Controlling Authority, which held that the respondent was entitled to gratuity without any cap. The Appellate Authority and the High Court upheld this decision, interpreting the Scheme as not imposing a ceiling on gratuity. However, the Supreme Court found that these decisions failed to consider the impact of Rule 6(b) of the Scheme, which mandated that gratuity for employees covered by the Act must be calculated according to the Act's provisions, including the ceiling limit.

5. Impact of Historical Amendments to the Act:
The Court reviewed the historical amendments to the Act, noting changes in the definition of "employee" and the ceiling on gratuity amounts. Initially, the Act applied to employees earning below a certain wage bracket, but amendments removed this wage ceiling, extending the Act's applicability to all employees regardless of wages. The ceiling on gratuity amounts was also raised over time, reflecting changes in economic conditions.

Conclusion:
The Supreme Court concluded that the respondent was covered by the Act and subject to the statutory ceiling of ?10 lakhs. The Trust Deed and Scheme did not offer an alternative or better terms for employees covered by the Act. The decisions of the Authorities under the Act and the High Court were set aside, and the respondent's Claim Petition was dismissed. The appeal was allowed, reinforcing the statutory ceiling on gratuity payments for employees covered by the Act.