Civil Appeal No 1627 of 1967

2nd February, 1968.

Petitioner Counsel: Mr. H. R. Gokhale, Senior Advocate, (Mr. D. N. Gupta, Advocate, with him),
Respondent Counsel: Mr. M. K. Ramamurthi, Mrs. Shyamala Pappu and Mr. Vineet Kumar, Advocates, . The following Judgment of the Court was delivered by

Cases Cited:
National Iron and Steel Co. Ltd. v. State of West Bengal, (1967) AIR 1967 SC 1206 (V 54),1967-2 SCR 391 [Para 8]
Calcutta Insurance Co. Ltd. v. Their Workmen, (1967) AIR 1967 SC 1286 (V 54),(1967) 2 SCR 596 [Para 9]
Burhanpur Tapti Mills Ltd. v. B. T. Mills Mazdoor Sangh, (1965) AIR 1965 SC 839 (V 52),1965-1 Lab LJ 453 [Para 8]
Wenger and Co. v. Their Workmen, (1964) AIR 1964 SC 864 (V 51),l963-2 Lab LJ 403 [Para 9]

JUDGMENT

HEGDE, J. :-This appeal has been brought to this court by special leave. It arises from the decision of the industrial tribunal, Andhra Pradesh, Hyderabad. The only question that arises for decision is whether on the basis of the material on record there was any justification for framing a gratuity scheme for appellant's staff.

2. The admitted facts are these. The appellant concern is having about 500 loons. It has a subscribed capital of a little over 35 lakhs. It built up reserve is over thirty lakhs. In three out of the six years during the period 1960-65 it has suffered substantial losses. Out of the remaining three years in one year it made a profit of about Rs. 45,000 in another year about Rs.13,000 and in 1962 over rupees twelve lakhs. The annual expenses of the appellant's concern under the head 'salaries, wages and bonus' are nearly 47 lakhs.

3. It was found by the tribunal that the appellant concern and the Nellimarla Jute Mills are sister concerns. Both of them are under a single management, viz., M/s. Mcleod and Company, Calcutta. They are located in the same region, the distance between the two being about 25 miles. In Nellimarla lute Mills a gratuity scheme for the staff is in existence and that in addition to provident fund benefits. Our attention was not invited to any material on record to show that these findings are not correct. In the appellant concern also there is a provident fund scheme for the staff. The appellant in its counter affidavit filed before the tribunal admitted that it had always been the policy of the management to introduce identical terms of employment for the workmen at Nellimarla and Chitavalsah. From the material before us it is not possible to find out the financial position of the Nellimaria mills. We ascertained from the learned counsel for the appellant that the appellant concern had made a profit of over a lakh of rupees in 1966. The tribunal has found and that finding was not challenged before us that the additional burden to be borne by the appellant as a result of the gratuity scheme framed by it is about Rs. 3,000 per year.

4. On behalf of the appellant two contentions were advanced in opposition to the proposed gratuity scheme. They are (1) the wage board was unable to recommend a gratuity scheme for the jute industry and hence there was no justification to frame the impugned scheme, and (2) in view of the losses incurred by the appellant during the years 1960-65 no additional burden should have been cast on it by introducing a gratuity scheme.

5. So far as the wage board recommendation is concerned, it pertains to the jute industry as a whole. After taking consideration the importance of the jute industry for the national economy and the difficulties currently experienced by that industry, the Wage Board thought that it would be inappropriate to compel-the industry to introduce a gratuity scheme for its employees. This recommendation relates to the industry as a where and not to any individual industrial unit. That recommendation cannot be understood as recommending that there should be no gratuity scheme for the employees. in any particular unit in that industry. What is true of an industry as a whole need not necessarily be so in respect of a unit therein. That position

in law was not disputed by Mr. Gokhale, learned counsel for the appellant. Therefore in considering the appropriateness or otherwise of the impugned scheme, we have to primarily consider its repercussion on the appellant. What is relevant to find out is whether the appellant can bear the additional burden and whether in the circumstances of the case there is justification for throwing that burden on it.

6. The tribunal has recommended a gratuity scheme for the staff of the appellant after taking into consideration its financial position as well as the fact that in the sister concern, i. e. the Nellimarla mills such a scheme is in existence. It is no more in controversy that in determining the conditions of service of the industrial workers in any unit, it is necessary to bear in mind the conditions prevailing in similar units in that region. Generally speaking the basis for such a determination is industry-cum-region.

7. The appellant concern is-tan economic unit. Jute mills having 300 or more looms are considered as economic units. The appellant has 500 looms. Similarly the Nellimarla mills have also got 500 looms. As seen earlier, the appellant is a big concern. Its paid up capital is over 35 lakhs. Its reserve is nearly as much as its paid up capital. This shows that in the past the appellant was a prosperous concern. It is true that it did suffer losses in some years in the recent past. But the question is whether it is a temporary phase or not. The tribunal has come to the conclusion that it is a passing phase. It is well settled that in drawing up enduring schemes like gratuity schemes temporary losses or gains should not be taken into consideration. What is of the essence is the profit making capacity of the concern. In determining that question one has to take into consideration the paid up capital of the company, its reserves, its earning in the past and its future prospects. A practical view of the question has to be taken.

8. In National Iron and Steel Co. Ltd. v. State of West Bengal, (l967) 2 SCR 391 = (AIR 1967 SC 1207) this court speaking through one of us (Mister, J.) quoted with approval the following passage in Burhanpur Tapti Mills Ltd. v. B. T. Mills Mazdoor Sangh (1965) 1 Lab LJ 458 = (AIR 1965 SC 839) :

" ...there are two general methods of fixing the terms of a gratuity scheme. It may be fixed on the basis of industry-cum-region or on the basis of units Both systems are admissible but regard must be had to the surrounding circumstances to select the right basis. Emphasis must always be laid upon the financial position of the employer and his profit-making capacity whichever method is selected", and it must be further seen "whether the industrial court was right in appraising the financial condition and the profit-making capacity of the company. A scheme for gratuity no doubt imposes a burden on the finances of the concern but the pressure is ex facie distributed over the years for it is limited to the number of retirements each year. The employer is not required to provide the whole amount at once. He may create a fund, if he likes and pay from the interest which accrues on a capitalised sum determined actuarially. This is one way of providing the money. Ordinarily the payment is made each year to those who retire. To judge whether the financial position would bear the strain the average number of retirements per year must be found out. This is one part of the inquiry. The next part of the inquiry is to see whether the employer can be expected to bear the burden from year to year. The present condition of his finances, the past history and the future prospects all enter into the appraisal of his ability."

9. In Calcutta Insurance Co. Ltd. v. Their Workmen, 1967-2 SCR 596 = (AIR 1967 SC 1286) this court observed :

"On the financial aspect of a gratuity scheme, we were referred to the case of Wenger and Co. v. Their Workmen, (1963) 2 Lab LJ 403. There it was observed by this court that the problem of the burden imposed by the gratuity scheme could be looked at in two ways. One was to capitalise the burden on actuarial basis which would show theoretically that the burden would be very heavy; and the other was to look at the scheme in its practical aspect and find out how many employees retire every year on the average. According to this Court, it was this practical approach which ought to be taken into account".

In the light of the principles noted above and on the material placed before the tribunal it is not possible to hold that the tribunal's conclusion was without any just basis.

10. For the reasons mentioned above this appeal fails and the same is dismissed with costs.

Appeal Dismissed