2006 (6) TMI 507 - SC - Indian Laws

Workman cannot claim both contractual and statutory gratuity benefits simultaneously under Payment of Gratuity Act 1972

Beed District Central Co-Operative Bank Ltd. Versus State of Maharashtra and Ors.

The SC interpreted the Payment of Gratuity Act, 1972 regarding entitlement to gratuity benefits under co-operative society schemes. The court held that ... Interpretation of Payment of Gratuity Act, 1972 - Entitlement for payment of gratuity on superannuation - benefit of ceiling limit - co-operative society - doctrine of blue pencil - ‘Golden Rule of Interpretation of Statute’ - HELD THAT:- Undoubtedly, the Payment of Gratuity Act is a beneficial statute. When two views are possible, having regard to the purpose, the Act seeks to achieve being a social welfare legislation, it may be construed in favour of the workman. However, it is also trite that only because a statute is beneficent in nature, the same would not mean that it should be construed in favour of the workmen only although they are not entitled to benefits thereof. (See Regional Director, Employees’ State Insurance Corporation, Trichur v. Ramanuja Match Industries, AIR (1985) SC 278). 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. 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. For the reasons aforementioned, the impugned judgment cannot be sustained, which is set aside accordingly. Issues:Interpretation of Payment of Gratuity Act, 1972 regarding calculation of gratuity rate and ceiling limit based on different schemes.Analysis:The case involved an appellant (Bank) registered under the Maharashtra Co-operative Societies Act, 1960, and its employees (respondents) entitled to gratuity upon superannuation. The Bank introduced various gratuity schemes with different rates and ceiling limits over the years. The Payment of Gratuity Act, 1972, governs the payment of gratuity to employees. Section 4 of the Act specifies the payment of gratuity based on completed years of service and sets a ceiling limit on the amount payable.The key issue was whether the respondents were entitled to the benefit of a higher ceiling limit under the 1998 Act while calculating gratuity at a higher rate based on a contractual scheme of the Bank. The respondents argued that the statutory provision should prevail over the contractual term, which they deemed repugnant to the Act. They sought to replace the ceiling limit in their contract with the statutory limit provided in the 1972 Act.The doctrine of blue pencil, allowing courts to strike out offending portions of a contract, was discussed in relation to severing illegal or void provisions. The court, however, held that this doctrine was not applicable in the case at hand. It emphasized that the Payment of Gratuity Act is a beneficial statute, but workmen must choose between the terms of the statute and those of the contract. The court ruled that a workman cannot opt for both the statutory benefits and the contractual terms simultaneously as it would defeat the purpose of the Act.The judgment highlighted the importance of interpreting the Act in favor of workmen while balancing the contractual terms agreed upon by the parties. It emphasized that the spirit of the Act should not be compromised by allowing employees to cherry-pick the most favorable provisions from both the statute and the contract. Ultimately, the court set aside the lower court's decision, ruling in favor of the Bank and disallowing the respondents from claiming benefits under both the statutory ceiling limit and the contractual gratuity rate simultaneously.