St. Thomas High School vs Basabi Chowdhury & Ors.

―Smt. Basabi Chowdhury was an employee of the Appellant St. Thomas' High School and served there as Assistant Teacher from 20.06.2090 to 28.02.2021 continuously without any break in service. So, the reckonable period of service rendered by Smt. Basabi Chowdhury is 30 years 8 months 8 days i.e. 31 years. Her last drawn gross salary/ total emoluments were Rs. 58,430.00. The appellant school did not contest these. Now only one point is to be decided In the instant appeal petition whether Smt. Basabi Chowdhury is entitled to get gratuity under Section 4(5) of the Payment of Gratuity Act, 1972 or not.‖

“Section 4(5) of the Payment of Gratuity Act, 1972 states inter alia –"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."

―the St. Thomas’ High School, resolved, that a fund called St. Thomas’ High School employees gratuity fund pursuant to a group gratuity scheme under a deed of trust and rules made thereunder a copy whereof authenticated by the chairman was placed at the meeting held and is hereby approved and that the following persons in perspective positional hierarchy of St. Thomas Educational Society and St. Thomas’ High School be the first Trustees of the aforementioned fund.‖

“As per decision in St. Thomas’ Educational Society I am hereby directed to request you to surrender and or cancel policy numbher:212500 with immediate effect.

Please e-mail us latest statement indicating current balance in our account.”

―The constitutional validity of the amendment to Section 2(e) of PG (Amendment) Act, 2009, having been upheld by the Apex Court with retrospective effect, the petitioner -management to make payment to the employees/teachers as is available under the provisions of the Payment of Gratuity Act, 1972, in accordance with Law, within a period of four weeks from the date of receipt of this order."

“11.

On 26-11-2007, the Payment of Gratuity (Amendment) Bill, 2007, was introduced in Parliament seeking to amend the definition of the word “employee” and thereby rectify the error or lacuna identified by this Court in Ahmedabad Pvt. Primary Teachers' Assn. [Ahmedabad Pvt. Primary Teachers' Assn. v. Ahmedabad Municipal Corpn., (2004) 1 SCC 755 : 2004 SCC (L&S) 306] The Object and Reasons, as stated and obvious, were to extend the benefit of gratuity to teachers of private educational institutions. The Bill was referred to the Standing Committee on 10-12-2007. After due deliberations and in-depth consideration, the Standing Committee deemed it appropriate to suggest changes vide the 26th Standing Committee Report. The report, on the aspect of grant of gratuity to teachers with effect from 3-4-1997 states:

―36. … The Committee feel that implementing the law from the year 2004 will cause irreparable loss to a large number of teachers of the country, particularly to those who have already retired. The Committee, therefore, called upon the Government to make the law applicable with retrospective effect i.e. from the date of notification in the year 1997. This will provide the needed succour as well as justice to all those affected persons who were denied their rightful benefits due to some technical flaw/legal lacuna in the definition of the term ―employee‖ as contained in Section 2(e) of the Payment of Gratuity Act, 1972.‖

18.

The second ground is again devoid of any merit and substance. The legislature, vide the Amendment Act, 2009, has given retrospective effect to the amended provision of Section 2(e) and the newly inserted Section 13-A with effect from 3-4-1997, which is also the date of the notification issued by the Government under Section 1(3)(c), making the PAG Act applicable to the educational institutions with ten or more employees. The amendment enforces and gives effect to what was intended by the notification, but could not be achieved on account of the technical and legal defect. The lacuna, a distortion in the language that had the unwitting effect of leaving out teachers, has been rectified so as to achieve the object and purpose behind the issuance of the notification, making the PAG Act applicable to all educational institutions. The argument of the educational institutions that they have been taken by surprise is incorrect and unacceptable as the legislation had cured the inadvertent defect in a statute, as pointed out by this Court, through legislative repair. Private schools, when they claim a vested right arising from the reason of defect, should not succeed, for acceptance would be at the expense of teachers who were denied and deprived of the intended benefit. Marginal inconvenience in the form of financial outgo or difficulty is of little weight, when curing of an inadvertent defect is made retrospectively in greater public interest, which consideration will overrule the interest of one or some institutions. [ See para 69 in Ujagar Prints (2) v. Union of India, (1989) 3 SCC 488 : (1989) 179 ITR 317 : (1989) 74 STC 401.] We find little merit in this argument also for the reason, that the observations of this Court in Ahmedabad Pvt. Primary Teachers' Assn. [Ahmedabad Pvt. Primary Teachers' Assn. v. Ahmedabad Municipal Corpn., (2004) 1 SCC 755 : 2004 SCC (L&S) 306] in para 26 were sufficient to indicate that a legislation should intervene to grant the benefit of gratuity to teachers. The contention that the private schools were sure to succeed as to deny the teachers the benefit of Notification No. S-42013/1/95-SS.(II) dated 3-4-1997, is questionable and farfetched to be accepted. The challenge was contested and had remained pending before the High Courts and then this Court. The private schools had relied on some judgments of this Court, but these judgments have interpreted the word ―employee‖ under other enactments. The law is subject to uncertainty ex-ante when two or more views are possible, but there may be certainty ex-post litigation in view of the law of precedents, which reduces uncertainty.

19.

A secondary argument on behalf of the private educational institutions that they would be liable to pay gratuity for a period of service prior to 3-4-1997, and, therefore, the amendments are unconscionable and tyrannous, is equally fallacious for several reasons. A somewhat similar controversy had arisen in Goodyear (India) Ltd. v. K.G. Devessar [Goodyear (India) Ltd. v. K.G. Devessar, (1985) 4 SCC 45 : 1985 SCC (L&S) 936] , wherein the employee was in service from 24-1-1961 to 31-12-1974. On 16-9-1972, the date when the PAG Act came into effect, he was drawing a salary of more than Rs 1000 per month and hence, in terms of the then definition of the word ―employee‖ under the PAG Act, which excluded those drawing salary of more than Rs 1000 per month, as per the employer management, the employee was not entitled to gratuity. Rejecting the contention, this Court held that the gratuity is payable to an employee as per the mandate of Section 4 [ ―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:Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement:Provided further that in the case of death of the employee, gratuity payable to him shall be paid to his nominee or, if no nomination has been made, to his heirs, and where any such nominees or heirs is a minor, the share of such minor, shall be deposited with the controlling authority who shall invest the same for the benefit of such minor in such bank or other financial institution, as may be prescribed, until such minor attains majority.Explanation.—For the purposes of this section, disablement means such disablement as incapacitates an employee for the work which he was capable of performing before the accident or disease resulting in such disablement.(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:Provided that in the case of a piece-rated employee, daily wages shall be computed on the average of the total wages received by him for a period of three months immediately preceding the termination of his employment, and, for this purpose, the wages paid for any overtime work shall not be taken into account:Provided further that in the case of an employee who is employed in a seasonal establishment and who is not so employed throughout the year, the employer shall pay the gratuity at the rate of seven days' wages for each season.Explanation.—In the case of a monthly rated employee, the fifteen days' wages shall be calculated by dividing the monthly rate of wages last drawn by him by twenty-six and multiplying the quotient by fifteen.(3) The amount of gratuity payable to an employee shall not exceed such amount as may be notified by the Central Government from time to time.(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.(6) Notwithstanding anything contained in sub-section (1),—(a) the gratuity of an employee, whose services have been terminated for any act, wilful omission or negligence causing any damage or loss to, or destruction of, property belonging to the employer, shall be forfeited to the extent of the damage or loss so caused;(b) the gratuity payable to an employee may be wholly or partially forfeited—(i) if the services of such employee have been terminated for his riotous or disorderly conduct or any other act of violence on his part, or(ii) if the services of such employee have been terminated for any act which constitutes an offence involving moral turpitude, provided that such offence is committed by him in the course of his employment.‖(7) ***] of the PAG Act, after he has rendered continuous service for not less than 5 years on his superannuation, retirement or resignation or on his death or disablement due to accident or disease, when such event has occurred post the enforcement of the PAG Act. The Court rejected the submission on behalf of the employer, management that an employee is entitled to gratuity only when, both on the date when the PAG Act came into force, and on the date when the employee retired, he/she was drawing wages not exceeding Rs 1000 per month. The Court observed that to approve the submission of the employer, management would render a whole class of workers, who were during the course of their employment drawing salary less than Rs 1000 per month but on the eve of their retirement were getting wages of Rs 1000 per month, without the benefit of gratuity. This could not have been the intention of Parliament. The reasonable way to construe Section 4 in the light of Section 2(e) of the PAG Act would be to hold that when the employees' services are terminated for any reason mentioned in Section 4 after coming into force of the PAG Act, the employee would be entitled to the payment of gratuity if he has rendered continuous service for not less than 5 years and for that period during which he satisfied the definition of ―employee‖ under Section 2(e). It does not matter whether that period comes before the commencement of the PAG Act. Once that condition is satisfied, the next and only question would be regarding the amount of gratuity payable.

24.

The provisions of the PAG Act, even post the retrospective amendments, will apply only to those teachers who were in service as on 3-4-1997, and at the time of termination have rendered service of not less than 5 years. The period of 5 years may be partly before 3-4-1997, as the date on which the person was employed does not determine the applicability of the PAG Act. The date of termination of service, in the form of superannuation, retirement, or resignation, or death or disablement due to accident or disease, should be post the enforcement date, which in the present case is 3-4-1997. The entire length of service, including the service period prior to 3-4-1997, is to be counted for the purpose of computing the entitlement condition of 5 years of service. This is the correct effect of the ratio and decision in Goodyear [Goodyear (India) Ltd. v. K.G. Devessar, (1985) 4 SCC 45 : 1985 SCC (L&S) 936] and the decisions explaining retroactive effect of a statute. This legal position would be equally true and correct when the PAG Act was first enforced with effect from 16-9-1972, and when Notification No. S-42013/1/95-SS.(II) under Section 1(3)(c) of the PAG Act was issued and enforced with effect from 3-4-1997. It would be the position in case of all notifications issued under Section 1(3)(c) of the PAG Act, unless a contrary intention is expressed, which is not the situation in the present case and thus need not be examined.”

―Upon retirement of a member on or after Normal Retirement date or upon death whilst in service after Normal Retirement Date or upon retirement owing to ill-health or incapacitation, the benefits payable will be equal to twenty days salary for each completed year of service subject to a maximum of 24 months' salary or such higher amount to be prescribed from time to time through amendment in the payment of Gratuity act, 1972.‖

“24.

The provisions of the PAG Act, even post the retrospective amendments, will apply only to those teachers who were in service as on 3-4-1997, and at the time of termination have rendered service of not less than 5 years. The period of 5 years may be partly before 3-4-1997, as the date on which the person was employed does not determine the applicability of the PAG Act. The date of termination of service, in the form of superannuation, retirement, or resignation, or death or disablement due to accident or disease, should be post the enforcement date, which in the present case is 3-4-1997. The entire length of service, including the service period prior to 3-4-1997, is to be counted for the purpose of computing the entitlement condition of 5 years of service. This is the correct effect of the ratio and decision in Goodyear [Goodyear (India) Ltd. v. K.G. Devessar, (1985) 4 SCC 45 : 1985 SCC (L&S) 936] and the decisions explaining retroactive effect of a statute. This legal position would be equally true and correct when the PAG Act was first enforced with effect from 16-9-1972, and when Notification No. S-42013/1/95-SS.(II) under Section 1(3)(c) of the PAG Act was issued and enforced with effect from 3-4-1997. It would be the position in case of all notifications issued under Section 1(3)(c) of the PAG Act, unless a contrary intention is expressed, which is not the situation in the present case and thus need not be examined.”

“55.

Miss Indra Jai Singh, learned Counsel for the appellant workmen, in Civil Appeal No. 1461 of 1972, advanced the main arguments in this regard. Mr Deshmukh appearing for the workmen in the other appeals, adopted her arguments. According to the learned Counsel, Section 11-A applies not only to references, which are made on or after December 15, 1971, but also to all references already made and which were pending adjudication on that date. It is pointed out that Section 11-A has been incorporated in Chapter IV of the Act dealing with procedure, powers and duties of authorities. According to them, Section 11-A deals with matters of procedure. Applying the well known canon of interpretation, procedural laws apply to pending proceedings also. No right, much less any vested right, of the employers has been taken away or affected by Section 11-A. Considerable stress has been laid on the use of the expressions ―has been referred‖ occur in Section 11-A, as conclusively indicating the applicability of the section even to disputes already referred. It was stressed that even assuming that an employer has a right to adduce evidence for the first time before the Tribunal, that right enures to him only after the Tribunal had adjudicated upon the validity of the domestic enquiry. It cannot be characterised even as a right, much less a vested right, because it is contingent or dependent upon the Tribunal's adjudication on the domestic enquiry. The Tribunal, when it adjudicates a dispute on or after December 15, 1971, has to exercise the powers conferred on it by Section 11-A, even though the dispute may have been referred prior to that date. Hence it is clear that the section applies even to all proceedings pending adjudication on December 15, 1971.

63.

It must be stated at this stage that procedural law has always been held to operate even retrospectively, as no party has a vested right in procedure. In our opinion, the principle stated in In re: Athlumney Ex parte Wilson [(1898) 2 QB 547] are more apposite to the case on hand. The question arose regarding the construction to be placed upon Section 23 of the Bankruptcy Act, 1890. The said section was as follows:

―Where a debt has been proved upon a debtor's estate under the principal Act, and such debt includes interest, or any pecuniary consideration in lieu of interest, such interest or consideration shall, for the purposes of dividend, be calculated at a rate not exceeding five per centum per annum, without prejudice to the right of a creditor to receive out of the estate any higher rate of interest to which he may be entitled after all the debts proved in the estate have been paid in full.‖‖

―145. Moreover, one another significant aspect in B.K. Educational Services [B.K. Educational Services (P) Ltd. v. Parag Gupta & Associates, (2019) 11 SCC 633 : (2018) 5 SCC (Civ) 528 : (2019) 212 Comp Cas 1] was that, as on 1-6-2016, NCLT was already empowered under Section 433 of the 2013 Act to apply the provisions of the 1963 Act. This power of NCLT was said to apply even when NCLT decided applications under Sections 7 and 9 of the IBC, 2016, respectively. The same is evident from the observation in B.K. Educational Services [B.K. Educational Services (P) Ltd. v. Parag Gupta & Associates, (2019) 11 SCC 633 : (2018) 5 SCC (Civ) 528 : (2019) 212 Comp Cas 1] that : (SCC p. 649, para 21)

―21. Given the fact that the ―procedure‖ that would apply to NCLT would be the procedure contained inter alia in the Limitation Act, it is clear that NCLT would have to decide applications made to it under the Code in the same manner as it exercises its other jurisdiction under the Companies Act.‖

147.

This issue may be viewed at from one another angle. It is no more res integra that limitation being a procedural law, a change in law in that regard applies retrospectively. However, this general principle has certain exceptions : (a) the new law of limitation providing for a longer period cannot revive a dead remedy; and (b) the new law of limitation cannot suddenly extinguish a vested right of action by providing for a shorter period of limitation.‖

―………….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" has 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 not 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. If such an interpretation is given, the spirit of the Act shall be lost. Even in Shin Satellite (supra), this Court stated :

"The proper test for deciding validity or otherwise of an agreement or order is "substantial severability" and not "textual divisibility". It is the duty of the court to sever and separate trivial or technical parts by retaining the main or substantial part and by giving effect to the atter if it is legal, lawful and otherwise enforceable. In such cases, the court must consider the question whether the parties could have agreed on the valid terms of the agreement had they known that the other terms were invalid or unlawful. If the answer to the said question is in the affirmative, the doctrine of severability would apply and the valid terms of the agreement could be enforced, ignoring invalid terms. To hold otherwise would be "to expose the covenanter to the almost inevitable risk of litigation which in nine cases out of ten he is very ill-able to afford, should he venture to act upon his own opinion as to how far the restraint upon him would be held by the court to be reasonable, while it may give the covenantee the full benefit of unreasonable provisions if the covenanter is unable to face litigation."

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 days5 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…………..‖

“23.

In Beed District Central Cooperative Bank Ltd. 4, 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. That was a situation where two alternatives were available to the employee. 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. In our view, the true import of Rule 6(b) which gets further emphasized by Civil Appeal No.2379 of 2020 (arising out of SLP (C) NO.5269 of 2019) BCH Electric Limited Vs. Pradeep Mehra 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. The Appendix to the Scheme reiterates the same principle. Thus, 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.‖

“8.

The Controlling Authority vide his impugned order held that the teachers were ''employees' as defined under Section 2(e) of the Act, 1972 and that the gratuity payable to the teachers had to be computed on their entire length of service, i.e., their service from the date of their initial appointment till the date of their retirement which included the extended period of service. ……………………...”

“47.

The exposition of the legal principles culled out is that an amendment having retrospective operation which has the effect of taking away the benefit already available to the employee under the existing rule indeed would divest the employee from his vested or accrued rights and that being so, it would be held to be violative of the rights guaranteed under Articles 14 and 16 of the Constitution.

50.

For the sake of illustration, if a person while entering into service, has a legitimate expectation that as per the then existing scheme of rules, he may be considered for promotion after certain years of qualifying service or with the age of retirement which is being prescribed under the scheme of rules but at a later stage, if there is any amendment made either in the scheme of promotion or the age of superannuation, it may alter other conditions of service such scheme of rules operates in futuro. But at the same time, if the employee who had already been promoted or fixed in a particular pay scale, if that is being taken away by the impugned scheme of rules retrospectively, that certainly will take away the vested/accrued right of the incumbent which may not be permissible and may be violative of Article 14 and 16 of the Constitution.

55.

In our view, nonavailability of financial resources would not be a defence available to the appellant Bank in taking away the vested rights accrued to the employees that too when it is for their socioeconomic security. It is an assurance that in their old age, their periodical payment towards pension shall remain assured. The pension which is being paid to them is not a bounty and it is for the appellant to divert the resources from where the funds can be made available to fulfil the rights of the employees in protecting the vested rights accrued in their favour.‖

“24.

The provisions of the PAG Act, even post the retrospective amendments, will apply only to those teachers who were in service as on 3-4-1997, and at the time of termination have rendered service of not less than 5 years. The period of 5 years may be partly before 3-4-1997, as the date on which the person was employed does not determine the applicability of the PAG Act. The date of termination of service, in the form of superannuation, retirement, or resignation, or death or disablement due to accident or disease, should be post the enforcement date, which in the present case is 3-4-1997. The entire length of service, including the service period prior to 3-4-1997, is to be counted for the purpose of computing the entitlement condition of 5 years of service. This is the correct effect of the ratio and decision in Goodyear [Goodyear (India) Ltd. v. K.G. Devessar, (1985) 4 SCC 45 : 1985 SCC (L&S) 936] and the decisions explaining retroactive effect of a statute. This legal position would be equally true and correct when the PAG Act was first enforced with effect from 16-9-1972, and when Notification No. S-42013/1/95-SS.(II) under Section 1(3)(c) of the PAG Act was issued and enforced with effect from 3-4-1997. It would be the position in case of all notifications issued under Section 1(3)(c) of the PAG Act, unless a contrary intention is expressed, which is not the situation in the present case and thus need not be examined.‖