Indian Overseas Bank v. The Regional Labour Commissioner (C) and Appellate Authority Payment of Gratuity Act Ministry of Labour

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED:28.04.2009CORAM:THE HON'BLE MR.JUSTICE P.JYOTHIMANIANDTHE HON'BLE MRS.JUSTICE ARUNA JAGADEESANWRIT APPEAL No.95 of 2008and M.P.Nos.1 to 3 of 2008..Indian Overseas Bankrep. By its Chairman &Managing DirectorCentral Office762 Anna SalaiChennai 600 002... Appellant vs.1. The Regional Labour Commissioner (C) and Appellate Authority Payment of Gratuity Act Ministry of Labour 4 Haddows Road Shastri Bhavan Chennai 600 006.2. The Assistant Labour Commissioner (C)-I and Controlling Authority under the Payment of Gratuity Act Ministry of Labour 4 Haddows Road Shastri Bhavan Chennai 600 006.3. N.Venkatasubramanian.. RespondentsWrit Appeal is filed against the order of the learned singleJudge made in W.P.No.17591 of 2005 dated 20.11.2007. Petitionpresented under Article 226 of the Constitution of India to issue awrit of Certiorari, calling for the concerned records relating to theorders in Gratuity Appeal No.307/2003 dated 27.4.2005 passed by the1st Respondent and quash the same as illegal, arbitrary, contrary tothe provisions of the payment of Gratuity Act,1972. https://hcservices.ecourts.gov.in/hcservices/ For appellant: Mr.N.G.R.PrasadFor respondents: Mrs.S.Seethalakshmi ACGSC for R.1 and R.2 Mr.C.R.Chandrasekaran for R.3...JUDGEMENTP.JYOTHIMANI,J.The appeal is directed against the order of the learned Judgedated 20.11.2007, passed in W.P.No.17591 of 2005, by which thelearned Judge has dismissed the writ petition.2. The facts leading to the filing of the writ petition are thatthe third respondent joined in the appellant bank on 30.12.1957 andhe retired as an Officer on 31.5.1994. According to the appellantbank, he was paid gratuity of Rs.1 lakh as per section 4(3) of thePayment of Gratuity Act, 1972 (in short, "the Act"), which was themaximum payable at the time of retirement of the third respondent,since the amount payable as gratuity as per the bank Scheme was lessbeneficial.2(a). It appears that there was a Settlement between the IndianBanks' Association representing the management and the Apex LevelOfficers Association on 23.6.1995. As per the Settlement, therevision of salary to the employees was given with retrospectiveeffect from 1.7.1993. It is admitted that the appellant has paid thearrears of salary as per the salary revision to the third respondentfrom 1.7.1993 till 31.5.1994. As per the Settlement, in respect ofpayment of gratuity, the benefit of revised salary would be takenonly in respect of employees who retired on or after 1.11.1994. 2(b). The third respondent filed an application before thecontrolling authority under section 7 of the Act, claiming an amountof Rs.85,400/-, being the difference in gratuity based on therevision of salary with interest as per the Settlement stated above. 3. It was the case of the appellant bank that only for thepayment of revision of salary, the date '1.7.1993' was made as cut-off date as per the Settlement and for gratuity, the cut-off date wasfixed as 1.11.1994 and inasmuch as the third respondent retired muchbefore the said date viz., on 31.5.1994, he is not entitled for therevision of gratuity based on the revised salary. It was thecontention of the appellant that the said different cut-off date forgratuity was challenged and it was ultimately decided on 30.8.2002 inW.P.No.7365 of 1999 to the effect that the cut off date for gratuity,namely 1.11.1994, is valid. https://hcservices.ecourts.gov.in/hcservices/

4. It is seen that the second respondent, the controllingauthority under the Payment of Gratuity Act, by order dated21.3.2003, directed the difference in gratuity, viz., Rs.85,400/- tobe paid to the third respondent. It was against the said order, theappellant has filed a statutory appeal as provided under section 7(7) of the Act before the first respondent, who by order dated27.4.2005, rejected the appeal stating that the Settlement cannotstand contrary to the provisions of the Act. It was, challenging thesaid order of the first respondent confirming the order of the secondrespondent, the appellant filed the above writ petition.5. The main contention of the appellant before this Court as wellas before the authorities under the Act was that the third respondentwho joined in the appellant bank in the year 1957 retired on31.5.1994 and as per the Payment of Gratuity Act, 1972, he was paidthe gratuity of Rs.1 lakh, which was the maximum amount permissibleat the time of retirement of the third respondent and which wasbeneficial to him. The Settlement arrived at after the retirement ofthe third respondent viz., on 23.6.1995 was in respect of revisionof salary with retrospective effect from 1.7.1993 and the differencein salary from 1.7.1993 till the date of retirement of the thirdrespondent viz., 31.5.1994 was paid to him. 5(a). It was also the contention of the appellant bank that inthe agreement of revision of salary, a cut-off date for payment ofgratuity has been fixed and accordingly, only the officers/personswho retired from 1.11.1994 should be paid gratuity as per theSettlement and therefore, the third respondent was paid the gratuityas per the Payment of Gratuity Act which was more beneficial to himthan the one under the bank Scheme.6. The contention raised on behalf of the third respondent wasthat admittedly when the salary was revised as per the settlemententered on 23.6.1995, it is only the revised salary which should bethe basis for fixing the gratuity also. It was the furthercontention of the third respondent that upholding of the validity ofcut-off date for payment of gratuity for the persons who retired from1.11.1994 has no application as far as the 3rd respondent isconcerned, because by virtue of amendment to the Payment of GratuityAct which came into effect on 24.5.1994, the salary ceiling limit ofRs.2,500/- per month has been taken away and the third respondent wasan employee of the appellant bank on the date of amendment viz.,24.5.1994 and by virtue of the settlement, the salary was revised ason 1.7.1993 and he was entitled for the benefits of gratuity as givenunder the Payment of Gratuity Act on the basis of the salary revisedas per the settlement. The learned Judge having accepted the saidcontention of the third respondent, dismissed the writ petition. Asagainst the judgment of the learned Judge, the present appeal hasbeen filed by the appellant bank. https://hcservices.ecourts.gov.in/hcservices/

7. It is the contention of Mr.N.G.R.Prasad, learned counselappearing for the appellant bank that once the cut-off date wasprescribed as 1.11.1994 for payment of gratuity in respect of theemployees of the appellant bank as per the Settlement, the validityof which date has been upheld by this Court, the third respondent whoretired much before the said date viz., on 31.5.1994, is not entitledto the benefit of the Settlement for payment of gratuity. It is hissubmission that when the validity of cut-off date viz., 1.11.1994 forthe purpose of Gratuity Act has been upheld, it is not open to thethird respondent to contend that his salary has been revised byvirtue of Settlement with effect from 1.7.1993 and based on therevision, arrears of salary has been paid from 1.7.1993 to 31.5.1994and therefore, he is entitled for the benefit of gratuity on thesalary revised under the Settlement as per the Payment of GratuityAct. 7 (a). He would submit that when, as per the Payment of GratuityAct, the maximum limit is Rs.1 lakh even by applying the revisedsalary, since the third respondent could make his claim under thePayment of Gratuity Act only, he would not be entitled for more thanRs.1 lakh. 7 (b). Further, he would submit that the third respondent canclaim the benefit either under the Payment of Gratuity Act or underthe bank Scheme and as per law, if the bank Scheme is morebeneficial, he would be entitled for the same and vice-versa.According to him, the third respondent, cannot mingle the Schemeunder the Settlement with the revision of his pay for the purpose ofpayment of gratuity under the Gratuity Act and contend that under theScheme he would be entitled for a better benefit and therefore, moreamount should be paid as gratuity, by ignoring the principles underthe Payment of Gratuity Act.8. On the other hand, it is the contention ofMr.C.R.Chandrasekaran, learned counsel appearing for the thirdrespondent that when the Payment of Gratuity Act got amended on21.5.1994, removing the ceiling limit of Rs.2,500/- per month, on thesaid date, the third respondent was an employee within the meaning ofthe Gratuity Act entitled for the benefit. He would submit thatunder section 4(5) of the Payment of Gratuity Act, the employees willbe entitled for better benefit. 8(a). It is his submission that when the third respondentremained as a member under the Payment of Gratuity Act till hisretirement eligible for gratuity, correspondingly, when subsequentrevision of pay was made which had been given effect from 1.7.1993,he would be entitled to treat the said revised pay under theSettlement as basic pay for the purpose of gratuity and therefore, hewould be entitled for Rs.1,85,400/- as gratuity. https://hcservices.ecourts.gov.in/hcservices/ 8(b). It is his submission that fixing of cut-off date as1.11.1994 for the purpose of payment of gratuity is not applicable tothe third respondent who was an employee within the meaning of thePayment of Gratuity Act till the date of his retirement and accordingto him, the said cut-off date 1.11.1994 applies to those persons whowere not employees on that date within the meaning of the Payment ofGratuity Act. He would rely upon the First Bench judgment of thisCourt in P.Sevaraj vs. Management of Shardlow India Ltd., reported in2007(1) LLN 835 to substantiate his contention that the last drawnwages has to be taken into consideration. 8(c). His further submission is that section 14 of the Paymentof Gratuity Act,1972 is having overriding effect and once the salaryhas been refixed by the Settlement, the difference of which hadalready been paid to him, he will be entitled for the gratuity on thebasis of basic pay refixed as per the Settlement and he will beentitled for the gratuity under the Scheme in which there is nomaximum limit. 9. On the facts of the case, it is clear that the revision ofsalary was made as per the Settlement entered into between the IndianBanks' Association representing its management and the OfficersAssociation on 23.6.1995, by which the basic salary of the thirdrespondent was revised as Rs.9950/- from the old salary of Rs.5050/-and that was given effect from 1.7.1993. By including the dearnessallowance along with the basic pay, the third respondent wasreceiving an amount of Rs.9,837.37 before the Settlement, while afterrevision, he was receiving a total salary of Rs.11,027.76.10. The Indian Overseas Bank (Officers') Service (Amendment)Regulations, 1996 came into effect from 17.8.1996, i.e., after thedate of retirement of the third respondent. It was, as per theamended Regulations, the gratuity payable to officers ceased to be inservice during the period from 1.7.1993 to 31.10.1994 was fixed asper the regulation 4(1) and that amendment has not been given anyretrospective effect. In the said amendment, clause 46 is relevantwhich is as follows:"46. GRATUITY:(1) Every Officer shall be eligible or gratuity on:(a) Retirement;(b) Death;(c) Disablement rendering him unfit for furtherservice as certified by a medical officer approved by theBank; https://hcservices.ecourts.gov.in/hcservices/ (d) Resignation after completing ten years ofcontinuous service; or(e) Termination of service in any other way exceptby way of punishment after completion of 10 years ofservice.(2) The amount of gratuity payable to an Officer shallbe one month's pay for every completed year of service,subject to a maximum of 15 month's pay.Provided that where an Officer has completed morethan 30 years of service, he shall be eligible by way ofgratuity for an additional amount at the rate of one half ofa month's pay for each completed year of service beyond 30years.Provided further that pay for the purpose ofGratuity for an officer who ceased to be in service duringthe period 1.7.1993 to 31.10.1994 shall be with regard toscale of pay as specified in sub-regulation (1) ofregulation 4."11. It is, by virtue of the second proviso to clause 46(2), theSettlement was entered on 23.6.1995, wherein it is stated that thegratuity as amended shall be paid only to the employees who ceased tobe in the bank service on or after 1.11.1994. The relevant clause ofthe settlement is as follows:"7. Gratuity:As per the consensus reached, gratuity computed interms of the Officers' Service Regulations to be now amendedshall be recalculated and difference paid only to sucheligible officer employees who cease to be in the bank'sservice on or after 1.11.1994. No arrears on account ofgratuity shall be payable to officers who ceased to be inbank's service prior to 1.11.1994."12. As per the Settlement, the revised scale of pay has beengiven effect from 1.7.1993. On facts, it is clear in this case andit is also admitted that by virtue of the amendment to the Paymentof Gratuity Act,1972 which came into effect on 24.5.1994, the ceilinglimit of Rs.2,500/- per month has been taken away, with the resultthe third respondent was an employee under the Payment of GratuityAct on the said date viz., 24.5.1994 since he retired only on31.5.1994.13. Mr.N.G.R.Prasad, learned counsel appearing for the appellantwould rely upon the judgment of the Division Bench of Delhi High https://hcservices.ecourts.gov.in/hcservices/ Court in KAILASH NATH SINHAL v UNION OF INDIA [2002(2) LLJ 1048] tosubstantiate his contention that the cut-off date prescribed as1.11.1993 under the respondent Bank Pension Scheme cannot be said tobe arbitrary or whimsical. 14. Section 4 of the Payment of Gratuity Act, 1972, sub-section(5) makes it clear that if the employee gets better benefit ofgratuity under any award, agreement or contract with the employer,the same shall not be prevented. The said section is as follows:"4. Payment of gratuity:- (1) to (4) xxx(5) Nothing in this section shall affect the right of anemployee to receive better terms of gratuity under any awardor agreement or contract with the employer."15. It is also relevant to point out that section 14 of thePayment of Gratuity Act, 1972 is given overriding effectnotwithstanding any inconsistent provision or instrument orcontract and the said section is as follows:"14. Act t override other enactments, etc.- The provisions of this Act or any rue made thereundershall have effect notwithstanding anything inconsistenttherewith contained in any enactment other than this Act orin any instrument or contract having effect by virtue of anyenactment other than this Act."16. In Syndicate Bank and others v. Celina Thomas and others[2006 (2) LLJ 413], it was held that any memorandum of understandingwhich includes any regulation cannot meddle with a statutoryprescription and the relevant portion of the judgment is as follows:"Para 7. Memorandum of Understanding cannot meddle with thestatutory prescriptions. Nobody can agree by way of asettlement at the behest of an organisation taking away thebenefit conferred on individuals by way of statutes orstatutory rules. There need not have any authority tosubstantiate this. Statutory prescriptions crystallize therights in favour of the subjects of that statute. It cannotbe varied to their disadvantage unless otherwise byamendment to the statute.Para 13. ... No nexus is pointed out for bringing anyclassification between those who retired between April 1,1992 and October 31, 1994 and those who retired betweenNovember 1, 1994 and June 23, 1995. Both these artificial https://hcservices.ecourts.gov.in/hcservices/ groups of retirees had retired from service prior to thedate of arriving at the Memorandum of Understanding, butafter the date of retrospectively to the MoU. They thereforeform themselves into one class as all of them retired laterthan the giving effect to the pay revision by the Memorandumof Understanding. When persons forming same class aretreated differently it violates Article 14 of theConstitution denying them equal protection of law andequality before law. Denial of gratuity to the writpetitioners is therefore discriminatory. Consequently, onthat reason alone, we have to sustain the view taken by thelearned Single Judge.Para 14. Consequently, W.A.No.1584 of 2002 stands dismissedand O.P.No.23514 of 1998 stands allowed with consequentialdirection to pay the respective employees the amount ofgratuity payable based on the revised pay as entitled tothem."17. It was held by the learned Single Judge of the Karnataka HighCourt in Y.R.SHENOY v. SYNDICATE BANK AND OTHERS [2003 (2) LLJ 997],that any agreement which will offend the rights given under thePayment of Gratuity Act will be void ab initio and the offendingportion of the agreement could be separated without nullifying theagreement and it is that portion of the agreement which is againstthe Payment of Gratuity Act will be declared as unlawful. In fact,that was a case similar to the present case where the employeesretired between 1.7.1993 and 31.10.1994 were denied the benefit ofrevision of salary for the purpose of payment of gratuity and it washeld as follows:''Para 12. Therefore, gratuity is a statutory right to beearned by long and continuous service, which is payable as aretiral benefit, a definite sum as lumpsum payment onretirement. It is a right if accrued cannot be taken away byagreement between the parties. Amount payable is alsodefinite, by agreement between the parties it cannot bereduced, but it could be enhanced.Para 13. Re. Point No.(ii). The joint note entered intobetween the management and the officers' union is binding onthe parties. However, if the term of the agreement isinconsistent with the provisions of the Payment of GratuityAct, 1972 such a term of the agreement has no effect. Evenotherwise the consideration or object of an agreement is ofsuch a nature that if permitted it would defeat theprovisions of any law the said term of the agreement wouldbe unlawful, void ab-initio and unenforceable. When thegratuity payable to an employee is statutory right which hehas earned by long and continuous service, thus when once it https://hcservices.ecourts.gov.in/hcservices/ is accrued, by agreement of the parties what is accruedcannot be deprived. Merely because an employee had thebenefit of the other provisions of the agreement that doesnot estop the employee from challenging that portion of theagreement which is unlawful, void ab-initio. If the saidoffending portion of the agreement could be separatedwithout nullifying the entire agreement it is permissible tochallenge that portion of the agreement which is unlawful.Therefore, it is open to the petitioners who had the benefitof the remaining portion of the agreement to challenge thatportion of the agreement which deprives them of a statutoryright which has accrued to them by their long continuousservice."18. In P.SELVARAJ V. MANAGEMENT OF SHARDLOW INDIA LTD., CHENNAI[2007(1) LLN 835], a Division Bench of this Court consistingA.P.Shah,J. (as he then was) and K.Chandru,J., when a similarargument was advanced that at the time of retirement of employee,the retiral benefits were given and the gratuity accounts was settledand the long term practice of the management settling the gratuityonly on the basis of the figures available on the date of death,retirement, etc., The said contention was rejected in the followinglines:"35. ...... We are not impressed with this line ofargument. The Gratuity Act is a beneficial piece oflegislation and it should receive an interpretationconsistent with the principles of equity and fair play.Therefore, the term "last drawn wage" found in S.4(2) of theGratuity Act should receive its full meaning and it cannotgive any fractured interpretation. Further, the settlementprovides as to what should be the wages that should be paidto a workman and that the management cannot adopt anartificial interpretation with reference to the term"wages". It is in this context, the term "wages" which isdefined under the Gratuity Act, must include not only whatis paid but also what is payable to a workman. ......"19. It is brought to our notice that recently in similarcircumstances, K.Chandru,J. in W.P.No.6746 of 1999 by order dated2.2.2009 has also taken the same view and we are in agreement of theview of the learned Judge. 20. In view of the established legal position, the judgment ofthe Supreme Court in HERBERTSONS LTD. v. WORKMEN [(1976) 4 SCC 736]which relates to the Industrial Disputes Act and the settlement undersection 18 of the said Act, that too, between two unions, on whichreliance was placed by Thiru N.G.R.Prasad, learned counsel for theappellant has no application to the facts of the case. https://hcservices.ecourts.gov.in/hcservices/

21. In these circumstances, the contention of the learned counselfor the appellant that in the Settlement entered into in respect ofrevision of salary, a subsequent cut-off date viz., 1.11.1994 wasfixed for the purpose of gratuity claim and hence, the thirdrespondent is not entitled to claim more than what he was granted asgratuity cannot be countenanced especially when the third respondentwas an employee within the meaning of Payment of Gratuity Act,1972,even after its amendment dated 25.4.1994. Further, the agreemententered into cannot take away the rights of parties, particularlywhen a better benefit is given to the employees. In such view of thematter, it is not possible to accept the contention of the learnedcounsel for the appellant and we find no reason to interfere with theorder of the learned Judge. The writ appeal therefore fails and the same is dismissed. Nocosts. Connected miscellaneous petitions are closed.Sd/-Asst. Registrar./true copy/Sub Asst. Registrar.khTo1. The Regional Labour Commissioner (C) and Appellate Authority Payment of Gratuity Act Ministry of Labour 4 Haddows Road Shastri Bhavan Chennai 600 006.2. The Assistant Labour Commissioner (C)-I and Controlling Authority under the Payment of Gratuity Act Ministry of Labour 4 Haddows Road Shastri Bhavan Chennai 600 006.+ 1 CC To Mr.S.Seethalakshmi, Advocate SR NO.18342+ 1 CC To Mr.N.G.R. Prasad, Advocate SR NO.18782+ 1 CC To Mr.C.R.Chandrasekaran, Advocate SR NO.18816 Judgment inMRD {CO} WRIT APPEAL No.95 of 2008TP/5.5.2009.