IMPORTANT POINT
Sub-section (5) of Section 4 of Payment of Gratuity Act does not contemplate that workman would be at liberty to opt for better terms of contract while keeping the option open in respect of a part of the statute.

Headnote:(i) Payment of Gratuity Act, 1972 - Section 4(5) - Gratuity to employees of appellant bank - Appellant adopted a scheme whereby rate of gratuity was to be calculated at the rate of 26 days’ salary for every completed year of service with a ceiling limit of Rs. 2.50 lakhs - Under the Act rate of gratuity was to be determined at the rate of 15 days’ salary for every completed year of service and ceiling limit was Rs. 3.50 lakhs by Amendment Act, 1998 - Respondents retired during currency of scheme of the Bank - They raised claim that they were entitled to benefit of both the scheme as also ceiling limit fixed under the 1998 Act - Their claim was accepted by Deputy Commissioner Labour and by High Court - Appeal - Whether in view of provisions of sub-section (5) of Section 4 of the 1972 Act, respondents would be entitled to benefit of ceiling limit of Rs. 3.50 lakhs, rate of gratuity should be calculated at the rate of 26 days’ instead and in place of 15 days’ salary for every completed year of service in terms of 1972 Act? - “Doctrine of blue pencil” could not be said to have application in the case - Applying the “Golden Rule of Interpretation of Statute, question should be considered from the point of view of nature of scheme as well the fact that parties agreed to terms thereof - Workmen could not opt for both the terms - Impugned judgment was liable to be set aside.
       Held : Applying the ‘Golden Rule of Interpretation of Statute’, to us it appears that the question should be considered from the point of view of the nature of the scheme as also the fact that the parties agreed to the terms thereof. When better terms are offered, a workman takes it as a part of the package. He may volunteer therefor, he may not. Sub-Section (5) of Section 4 of the 1972 Act provides for a right in favour of the workman. Such a right may be exercised by the workman concerned. He need not necessarily do it. It is the right of individual workman and not all the workmen. When the expression “terms” have been used, ordinarily it must mean “all the terms of the contract”. While interpreting even a beneficent statute, like, Payment of Gratuity Act, we are of the opinion that either contract has to be given effect to or the statute. The provisions of the Act envisage for one scheme. It could be segregated. Sub-Section (5) of Section 4 of the 1972 Act does not contemplate that the workman would be at liberty to opt for better terms of the contract, while keeping the option open in respect of a part of the statute. While reserving his right to opt for the beneficent provisions of the statute or the agreement, he has to opt for either of them and not the best of the terms of the statute as well as those of the contract. He cannot have both.(Para 14)
       It is significant that in the event the amount of gratuity is calculated at the rate of 26 days’ salary for every completed year of service, vis-a-vis, 15 days’ salary therefor, the tenure of an employee similarly situate will vary. Whereas in the former case an employee may receive the entire amount of gratuity while working for a lesser period, in the latter case an employee drawing the same salary will have to work for a longer period. We are, therefore, of the opinion that the workman cannot opt for both the terms. Such a construction would defeat the purpose for which Sub-Section (5) of Section 4 has been enacted. For the reasons aforementioned, the impugned judgment cannot be sustained, which is set aside accordingly.(Paras 15 and 16)
       (ii) Blue Pencil Doctrine - Test - Only offending words are invalidated in the contract as opposed to changing, adding or rearranging words. (Paras 10 and 11)

JUDGMENT

S.B. Sinha, J. - Leave granted.

2. Appellant (Bank) is a co-operative society registered under the Maharashtra Co-operative Societies Act, 1960. Respondents are its employees. On their superannuation they were entitled to payment of gratuity. A policy decision was taken by the Bank to extend the benefit of better rate of gratuity to a large number of its employees. A scheme was formulated therefor which was linked with a policy of Life Insurance Corporation of India who were on its roll on and from 1.12.1975. In terms of the said scheme, the rate of gratuity was to be calculated on one month’s salary for every completed years of service with ceiling limit of 20 months’ salary. It was operative from 1975 to 19.7.1996. The employees of the Bank accepted the said scheme and availed the benefits thereof. The said scheme was amended providing for payment of gratuity at the rate of 26 days’ salary for every completed year of service with a ceiling limit of 1.7 lakhs. The said scheme was operative from May, 1994 to 24.9.1997. Yet again, a scheme was floated raising the ceiling limit of Rs. 1.7 lakhs to Rs. 2.50 lakhs. Payment of Gratuity Act, 1972 (for short, ‘1972 Act’) was enacted by the Parliament to provide for a scheme for the payment of gratuity to its employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops or other establishments and for matters connected therewith or incidental thereto. “Completed year of service” has been defined to mean continuous service for one year. Payment of gratuity is provided for in Section 4 thereof; the relevant portion whereof reads as under:

“4. Payment of gratuity. - (1) Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years,-

a) on his superannuation, or

b) on his retirement or resignation, or

c) on his death or disablement due to accident or disease:

(2) For every completed year of service or part thereof in excess of six months, the employer shall pay gratuity to an employee at the rate of fifteen days’ wages based on the rate of wages last drawn by the employee concerned:

(3) The amount of gratuity payable to an employee shall not exceed three lakhs and fifty thousand rupees.

(4) For the purpose of computing the gratuity payable to an employee who is employed, after his disablement, on reduced wages, his wages for the period preceding his disablement shall be taken to be the wages received by him during that period, and his wages for the period subsequent to his disablement shall be taken to be the wages as so reduced.

(5) Nothing in this section shall affect the right of an employee to receive better terms of gratuity under any award or agreement or contract with the employer.”

3. In terms of the provisions of the said Act, the ceiling limit of the amount of gratuity was raised to 2.50 lakhs. The rate of gratuity, however, was to be determined at the rate of 15 days’ salary for every completed year of service. The said ceiling limit, however, was later on increased to 3.50 lakhs by reason of an amendment made by Payment of Gratuity (Amendment) Act, 1998 (for short, ‘1998 Act’), which was given a retrospective effect from September, 1997.

4. Respondents retired during the currency of the scheme of the Bank in terms whereof, although the rate of gratuity was to be calculated at the rate of 26 days’ salary for every completed year of service, the ceiling limit thereof was 1.7 lakhs and 2.50 lakhs between the period 20.7.1996 and 30.11.1999; and the period 1.12.1999 and 17.1.2005 respectively. The amount of gratuity offered to them in terms of the scheme was accepted. However, they raised a claim that they were entitled to the benefit of both the scheme as also the ceiling limit fixed under the 1998 Act. The said contention of Respondents was accepted not only by the Deputy Commissioner of Labour, Aurangabad by a judgment and order dated 12.7.2005,

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2006 Supreme(SC) 914

IMPORTANT POINTSub-section (5) of Section 4 of Payment of Gratuity Act does not contemplate that workman would be at liberty to opt for better terms of contract while keeping the option open in respect of a part of the statute.

Cases Referred (2)

IMPORTANT POINT
Sub-section (5) of Section 4 of Payment of Gratuity Act does not contemplate that workman would be at liberty to opt for better terms of contract while keeping the option open in respect of a part of the statute.