THE MANAGING DIRECTOR, KERALA FINANCIAL CORPORATION v. V. AUGASTHIALINGOM

P.N.RAVINDRAN,J. -------------------------------W.P.(C) No.23333 of 2011 --------------------------------------Dated this the 25th day of May, 2012 JUDGMENTThe Managing Director of the Kerala Financial Corporation(hereinafter referred to as 'the Corporation' for short) has filedthis writ petition challenging Ext.P1 order passed by the Upa LokAyukta on 1.7.2011 whereby the Upa Lok Ayukta directed him topay a further sum of Rs.1,00,000/- to the first respondenttowards gratuity in addition to the sum of Rs.3.50 lakhs disbursedto him on his retirement. The brief facts of the case are asfollows:-2. The first respondent entered service in the Corporationon 3.1.1976. He retired from service on attaining the age ofsuperannuation on 31.7.2006. The pay and allowances ofemployees of the Corporation are determined after discussionswith service organizations and are incorporated in thememorandum of settlement entered into between themanagement and the employees represented by serviceorganizations from time to time. The last of such bilateralsettlements ceased to be in force on 30.6.2011. Thereafter no W.P.(C) No.23333 of 20112memorandum of settlement had been entered into between themanagement and the employees. Such a memorandum ofsettlement was arrived at covering the period from 1.7.2001 to30.6.2011 only on 28.7.2007 when Ext.P2 memorandum ofsettlement was entered into between the Managing Director ofthe Corporation and KFC Officers Association, KFC ProfessionalsForum, KFC Employees Association and KFC Staff Union. 3.After Ext.P2 memorandum of settlement was enteredinto, the Managing Director of the Corporation issued Ext.P3office order dated 26.11.2007 incorporating the stipulations inExt.P2. After Ext.P2 memorandum of settlement was enteredinto and Ext.P3 office order was issued, the first respondent filedExt.P4 complaint before the Hon'ble Upa Lok Ayukta constitutedunder section 4 of the Kerala Lokayukta Ordinance, 1999. Inthat complaint he contended that as Ext.P2 bilateral agreementcovers the period from 1.7.2001 to 30.6.2006 and 1.7.2006 to30.6.2011 he is entitled to receive the sum of Rs.4.50 lakhs byway of gratuity, but by Ext.P3 office order dated 26.11.2007, theManaging Director denied the right of those employees who W.P.(C) No.23333 of 20113retired from service before 1.8.2007 to enhanced gratuity, thatunder the bilateral agreement all employees who retired between1.7.2001 to 31.7.2007 are eligible for enhanced gratuity in termsof paragraph 14 of the bilateral agreement, but the managementdisbursed enhanced gratuity only to those employees who retiredfrom service after 1.8.2007 and thereafter. He contended thaton the terms of Ext.P2 bilateral agreement, he is entitled toreceive a further sum of Rs.1,00,000/- towards gratuity.4. Upon receipt of notice from the Upa Lok Ayukta, thepetitioner entered appearance and filed Ext.P5 objections. Inparagraph 3 he stated that as per sub section (3) of section 4 ofthe Payment of Gratuity Act, 1972, (hereinafter referred to as'the Act' for short) the gratuity payable to an employee is limitedto Rs.3.50 lakhs, that in sub section (5) of section 4 thereof, it isstipulated that noting contained in section 4 shall affect the rightof an employee to receive better terms of gratuity under anyaward or agreement or contract with the employer, that the lastmemorandum of settlement between the service organizationsand the management was signed on 28.7.2007, that thereafter W.P.(C) No.23333 of 20114the Board of Directors of the Corporation that met on 24.11.2007resolved to implement the revision and to release the revised paywith effect from 1.8.2007 and also authorised the ManagingDirector of the Corporation to negotiate with the serviceorganizations regarding payment of arrears for the period from1.7.2001 to 31.8.2007, that accordingly negotiations were heldon 15.4.2008 and 26.4.2008 and Ext.P3(a) minutes was alsoprepared. In paragraph 5 and 6 of the counter affidavit, thepetitioner disputed the claim of the first respondent for paymentof an additional sum of Rs.1,00,000/- towards gratuity.Paragraphs 5 and 6 of the objection filed by the petitioner toExt.P4 complaint are extracted below:-"5. The averments in para 8 and 9 are denied. Thebenefits of settlement was extended to those employeeswho joined the Corporation after 01.07.2001 and who areon the roll of the Corporation on the date of agreement ie.28.7.2007. The complainant entered in the service of theCorporation on 31.01.1976 and retired on 31.07.1976 andretired on 31.07.2006 on superannuation. Hence he is notentitled to get the benefit of enhanced gratuity of Rs.4.5lakhs. His eligible gratuity amount of Rs.3.5 lakhs hadalready been disbursed. The office order dated 26.11.2007(Ext.A2) has been issued by the Corporation as approved W.P.(C) No.23333 of 20115by the Board of Directors in its meeting held on 30.07.2007and 24.11.2007 based on the terms agreed betweenService Organizations and KFC.6. Averments in para 10 of the complaint are denied. Asper Claus “C-14 other matters” the maximum limit ofgratuity was fixed as 4.5 lakhs. The enhancement ofgratuity was given effect only from 1.8.2007, i.e., forpersons who retire after the date of signing of agreement.This matter was communicated to all concerned vide OfficeOrder No.Psl./3798/07 dated 26.11.2007. Theenhancement of limit of gratuity was given only prospectiveeffect since the same was discussed and finalized not as apart of pay but as part of the bilateral agreement signedbetween the service organisations and the management.Hence it is evident that the Corporation was paying theamount of Rs.3.5 lakhs bound by the Gratuity Act 1972 andthe increased amount of Rs.4.5 lakhs was given as part ofthe mutually agreed bilateral agreement between theservice organisation and management w.e.f. 1.8.2007 forwhich the employees who retired before 1.8.2007 cannotmake a claim. Hence the contention of the complainantdoes not hold good. The recent amendment regardingenhancing of gratuity limit to Rs.10 lakhs by theGovernment of India was also not given the retrospectiveeffect. It may please be noted that for the aboveenhancement, the effective date was fixed as 24.5.2010,the date on which the payment of Gratuity (Amendment)Act 2010 (15 of 2010) came into force.”5. Shorn of details, the contention raised in paragraph 5 W.P.(C) No.23333 of 20116and 6 as extracted above was that the benefit of the settlementis extended to those employees who joined the Corporation after1.7.2001 and were on the rolls of the Corporation on the date ofthe agreement and therefore the complainant who enteredservice on 31.1.1976 and retired from service on 31.7.2006 isnot entitled to get the benefit of enhanced gratuity. It was alsocontended that the enhancement of gratuity takes effect onlyfrom 1.8.2007 i.e., to persons who retired after the date of theagreement. In other words, it was contended that enhancementof the limit of gratuity has only prospective effect. The Upa LokAyukta considered the rival contentions and upheld the claim ofthe first respondent and directed the petitioner to pay a furthersum of Rs.1,00,000/- towards gratuity. Hence this writ petitionchallenging Ext.P1 and seeking the following reliefs:“(i) Call for the records leading to Exhibit P1 order of the 2ndrespondent and quash the same by issuing a writ ofcertiorari.(ii) To declare that the clause relating to gratuity in Ext.P2Settlement has only prospective effect.”6. The main contention raised by the petitioner is that thestipulation regarding payment of enhanced gratuity in Ext.P2 W.P.(C) No.23333 of 20117bilateral agreement has only prospective effect and that onlythose employees who retired from service after 1.8.2007 areentitled to enhanced gratuity of Rs.4.50 lakhs. It is contendedthat the stipulation regarding the period of validity under theheading “D” occurring in Ext.P2 settlement does not covergratuity and that as per Ext.P2 settlement, revision of allowanceshas only prospective effect from 1.8.2007 and therefore thepetitioner who retired from service on 31.7.2006 is not entitledto gratuity in excess of Rs.3.50 lakhs. The first respondent hasentered appearance through counsel and filed counter affidavitdated 10.11.2011 reiterating the contentions raised in Ext.P4compliant and justifying the order passed by the Upa Lok Ayukta.7.I heard Sri.Millu Dandapani, learned counsel appearingfor the petitioner and Sri.Ahzar, learned counsel appearing forthe first respondent. I have also gone through the pleadings andthe materials on record. Shorn of details, the claim made by thefirst respondent before the Upa Lok Ayukta was that under theterms of Ext.P2 bilateral settlement which governs a period often years from 1.7.2001 to 30.6.2011, as an employee in service W.P.(C) No.23333 of 20118was on 1.7.2011, he is entitled to all the benefits contemplatedtherein including revised gratuity. The stand of the petitioner isthat revised gratuity is payable only to those employees whoretire from service on and after 1.8.2007. Ext.P2 memorandumof settlement deals with scales of pay, fitment, weightage,fixation of pay, option and increment beyond maximum, whichare grouped together under the heading "A". Various types ofallowances like Dearness Allowance, House Rent Allowance, CityCompensatory Allowance, etc. (22 in number) are grouped underthe heading "B". Medical benefits, canteen subsidy, group tour,etc. are grouped under the heading "C-Other Matters". Item 14therein deals with gratuity. The stipulation in paragraph 14under the heading "C-Other Matters" reads as follows:"14. Gratuity:Existing system of calculation will continue subject to thecondition that the maximum limit is enhanced from Rs.3.5 lakhsto Rs.4.5 lakhs." 8. Paragraph 14 does not stipulate that the maximumlimit of gratuity is enhanced from Rs.3.5 lakhs to Rs.4.5 lakhsonly prospectively or that such enhanced gratuity is applicable W.P.(C) No.23333 of 20119only to those employees who retire on and after 1.8.2007. It isrelying on the stipulations under the heading "D-Period ofValidity" and "E-Miscellaneous" occurring in Ext.P2 memorandumof settlement that the petitioner contends that revised gratuity ispayable only to those employees who retire from service on andafter 1.8.2007. The relevant portions of the agreement relied onby the petitioner are extracted below:"D. PERIOD OF VALIDITY:The settlement will be in operation from 1.7.2001 to30.6.2011.(i) Pay revision shall take effect from 1.7.2001 for 10 years upto 30.6.2011.(ii) Allowances revision shall have prospective effect i.e. from1.8.2007.E. MISCELLANEOUSi)The benefit of settlement will be extended to theemployees who joined the Corporation after 1.7.2001 and whoare on the rolls of the Corporation on the date of agreement(28.7.2007).ii)This settlement will be full and final settlement of thememorandum of demands of the employees through therecognised organisations. It is also agreed that they will notraise any fresh demands during the period of operation of thesettlement.iii)The existing practice and rules will be made applicable tothe matters which are not mentioned/covered under this W.P.(C) No.23333 of 201110agreement of settlement.iv)The employees promised to co-operate in proving theirefficiency and the output of the Corporation by putting theirmaximum efforts. It is also agreed that they will strive formaximising the income of the Corporation so as to bring downthe total Administrative and Establishment Expenses to 8% ofthe total income of the Corporation as insisted by SIDBI in theMOU."9.The petitioner also relies on paragraph 14 of Ext.P3office order issued in implementation of Ext.P2 settlement and itis extracted below: "14. Gratuity:Existing system of calculation will continue subject to thecondition that the maximum limit is enhanced from Rs.3.5 lakhsto Rs.4.5 lakhs. This will have effect from 1.8.2007"A comparison of paragraph 14 of Ext.P2 settlement andparagraph 14 of Ext.P3 order indicate that the words "this willhave effect from 1.8.2007" was not a stipulation which wasagreed upon between the management and the employees. Thestipulation in paragraph 14 of Ext.P3 order to the effect that theenhancement of gratuity with effect from 1.8.2007 was not astipulation which was agreed upon by the employees. But it wasincorporated by the Managing Director of the Kerala Financial W.P.(C) No.23333 of 201111Corporation, after the Board of Directors that met on 30.7.2007and 24.11.2007, approved the memorandum of settlementevidenced by Ext.P2. It is evident from the stipulations in Ext.P2agreement under the heading "Period of Validity" that Ext.P2memorandum of settlement governs the period from 1.7.2001 to30.6.2011. The petitioner was admittedly in service during thatperiod, he having retired from service only on 31.7.2007. It isalso stipulated therein that the pay revision shall take effect from1.7.2001 and it will be valid for ten years ending with 30.6.2011.Yet another stipulation is that revision of allowances shall haveprospective effect from 1.8.2007. However, nothing is stated asregards enhanced gratuity under the heading "Period of Validity".But strangely enough, when Ext.P3 office order was issued it wasstipulated that this will have effect from 1.8.2007 only. It isrelying on that stipulation and the stipulation in clause (i) underthe heading "E" that the petitioner disputes the first respondent'sentitlement for payment of enhanced gratuity. Clause (i) underthe heading 'E' in Ext.P2 agreement also does not in expressterms stipulate that enhanced gratuity will be paid only to those W.P.(C) No.23333 of 201112employees who retire from service on and after 1.8.2007. All thatis stipulated in Clause (i) of Ext.P1 under the heading "E" is thatthe benefit of settlement will be extended to the employees whojoined the Corporation after 1.7.2001 and who are on the rolls ofthe Corporation on the date of agreement (28.7.2007). The UpaLok Ayukta after considering the relevant provisions in theagreement held as follows:"14.Having thus noticed the pertinent aspects relevant forconsideration I would propose to deal with the contention ofthe respondent that the complainant is not entitled to getthe benefit of the enhanced rate of gratuity as he hadentered the service of the Corporation on 31.1.1976 andhad retired on 31.07.2006. It is evident from themiscellaneous provision that the aforesaid clause wasincorporated in the Memorandum of Settlement to extendthe benefit of the settlement to those employees who joinedthe Corporation after 01.07.2001, and not to deny thebenefits of Ext A to the then existing employees. By nostretch of imagination the above clause in Ext A can bemade use of to contend for the position that the benefitsprovided under Ext A are not available to those employeeswho had joined the service of the Corporation before01.07.2001 and not to those who were already in service.Contention to the contrary is only to be rejected."10.It was held that clause (i) under the heading "E" was W.P.(C) No.23333 of 201113incorporated in the memorandum of settlement only for thepurpose of extending the benefit of the settlement to thoseemployees who joined the Corporation after 1.7.2001 and not todeny benefits to existing employees. It was held that by nostretch of imagination can the stipulation in clause (i) under theheading "E" in Ext.P2 settlement be made use of to contend forthe position that the benefits provided under the Memorandum ofSettlement are not available to those employees who joined theCorporation before 1.7.2001 and are already in service. I am inagreement with the said reasoning adopted by the Lok Ayukta.That apart, if as contended by the petitioner, the benefit of thesettlement is extended only to those employees who joined theCorporation after 1.7.2001 and were on the rolls of theCorporation on the date of the agreement (28.7.2007), then itwill militate against the stipulation under the heading "D" that thesettlement will be in operation from 1.7.2001 to 30.6.2006. It isalso not in dispute that pursuant to Ext.P2 settlement therevision of wages took effect from 1.7.2001, though pursuant toExt.P3(a) minutes, the employees agreed to forego 50% of the W.P.(C) No.23333 of 201114arrears of pay during the period from 1.7.2001 to 30.6.2006.Ext.P3(a) minutes coupled with the fact that 50% of arrears ofpay consequent on Ext.P2 settlement was given to employeesduring the period from 1.7.2001 to 30.6.2006 and entire arrearsof pay from 1.7.2006 establishes beyond doubt that the benefitof the settlement is available to all those employees who were inservice in the Corporation on 1.7.2001. The first respondent wasadmittedly in service on 1.7.2001. He retired from service on31.7.2006. On the terms of the settlement the petitioner isentitled to the benefit of pay revision. In the absence of anystipulation to the effect that enhanced gratuity will not be paid tothose employees who retire during the period from 1.7.2001 to30.6.2006, but only to those who retire after 1.8.2007, theobjection raised by the petitioner to the claim for enhancedgratuity made by the first respondent was in my opinion rightlyrejected by the Lok Ayukta. As stated by the petitioner himselfsub-section (5) of section 4 of the Payment of Gratuity Act, 1972recognises the right of the employee to receive better terms ofgratuity under an award or agreement or contract with the W.P.(C) No.23333 of 201115employer. Such right was recognised in the employees with thesigning of Ext.P2 memorandum of settlement. The managementwhich had agreed to pay enhanced gratuity to the employeescannot in my opinion be heard to contend that no employee whoretired prior to the signing of memorandum of settlement will beentitled to enhanced gratuity.11.Though the learned counsel appearing for thepetitioner contended that in view of the stipulations in sub-section (1) of section 8 of the Kerala Lok Ayukta Act, 1999 andthe second schedule to clause (d), the Lok Ayukta could nothave entertained the complaint regarding the payment ofgratuity, I am of the opinion that the said contention cannot beentertained in view of the decision of this Court in Director,Economics and Statistics v. Subramani Pillai [2007 (3) KLT366] which was affirmed by a Division Bench of this Court inK.S.R.T.C. v. Padmavathy [2008 (1) KLT 584]. InK.S.R.T.C. v. Padmavathy supra, a Division Bench of this Courtheld that Lok Ayukta has jurisdiction to entertain complaintsrelating to claims for terminal benefits including gratuity. W.P.(C) No.23333 of 201116For the reasons stated above, I hold that the challenge toExt.P1 order is without merit. The writ petition fails and isdismissed. No costs. Sd/-P.N.RAVINDRAN JUDGE/TRUE COPY/P.A. To JUDGEVPV