2007 (1) TMI 660 - SC - Indian Laws

Retrenchment upheld; average pay under Section 2(aaa) is mean of three calendar months, employer met Section 25F(b)

Guru Jambheshwar University through Registrar Versus Dharam Pal

The SC allowed the employer's appeal, set aside the HC order and the Labour Court award, and held the retrenchment valid. The Court ruled average pay ... - ISSUES PRESENTED AND CONSIDERED 1. Whether 'average pay' for the purpose of retrenchment compensation under Section 25F(b) of the Industrial Disputes Act must be computed by converting monthly wages into a per-day rate on the basis of 26 working days (i.e., monthly wage/26), or whether the statutory definition of 'average pay' in Section 2(aaa)(i) requires treating the monthly rate as the average pay without such conversion. 2. Whether decided principles applied under the Payment of Gratuity Act (notably the computation of 'fifteen days' wages' by dividing monthly wages by 26) are applicable or instructive for computation of retrenchment compensation under Section 25F(b) of the Industrial Disputes Act. 3. Whether the employer's payment at the time of retrenchment satisfied the conditions of Section 25F(b) when the employee had rendered two years and one month of continuous service and was paid a sum equal to one month's wages. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Proper method to compute 'average pay' under Section 25F(b) of the Industrial Disputes Act Legal framework: Section 25F(b) prescribes retrenchment compensation 'equivalent to fifteen days' average pay for every completed year of continuous service or any part thereof in excess of six months.' Section 2(aaa) defines 'average pay' and, for monthly paid workmen, directs calculation as the average of wages payable in the three complete calendar months preceding payment (Section 2(aaa)(i)). Precedent treatment: The Labour Court applied a doctrine developed under the Payment of Gratuity Act and related precedents (including Jeevanlal and Digvijay Woollen Mills) that treated monthly wages as wages for 26 working days when computing benefits expressed in 'days' wages.' That approach had been accepted under the Payment of Gratuity Act context. Interpretation and reasoning: The Court applied principles of statutory construction: give words their natural and ordinary meaning unless context or object requires otherwise. The definition of 'average pay' in Section 2(aaa)(i) is unambiguous and prescribes computation by averaging the three complete calendar months' wages; where wages are monthly remunerations, that average equals the monthly rate. The Court distinguished the gratuity line of cases because they arise from different statutory language defining 'wages' and prescribing 'fifteen days' wages' based on the 'rate of wages last drawn,' which required identifying a rate in terms of working days. The Court noted that the Payment of Gratuity Act subsequently contained an express statutory explanation prescribing division by 26 for monthly-rated employees - an amendment absent from the Industrial Disputes Act - reinforcing that the 26-day convention is not transferrable by judicial fiat to Section 25F. Ratio vs. Obiter: Ratio - 'average pay' under Section 2(aaa)(i) for monthly paid workmen is the monthly rate arrived at by averaging three complete calendar months; therefore, for retrenchment compensation under Section 25F(b) the statutory 'average pay' is the monthly rate and should not be converted by dividing by 26. Distinguishing analysis of gratuity jurisprudence and legislative amendment in the Payment of Gratuity Act constitutes binding ratio for this context. Observations about general principles of statutory interpretation are supporting reasoning. Conclusions: The Labour Court's method of dividing the monthly wage by 26 to obtain a per-day average was legally erroneous. The correct computation for the respondent, being a monthly paid workman, is that the 'average pay' equals the monthly rate (as per Section 2(aaa)(i)), and retrenchment compensation for 30 days (15 days × 2 completed years) equals one month's wages. Issue 2 - Applicability of Payment of Gratuity precedents (Jeevanlal, Digvijay Woollen Mills) to Section 25F computation Legal framework: The Payment of Gratuity Act defined 'wages' differently (Section 2(s)) and specified gratuity as 'fifteen days' wages based on the rate of wages last drawn.' Judicial decisions under that Act interpreted 'rate' to reflect working-day conventions and allowed division by 26 for monthly rated employees; subsequently, the legislature codified that practice by an explicit explanation. Precedent treatment: The Labour Court relied on Jeevanlal (and Digvijay Woollen Mills) to adopt the 26-day divisor. The High Court did not consider the point in detail. The Supreme Court examined and distinguished those precedents. Interpretation and reasoning: The Court held that the gratuity cases turn on the statutory language of the Payment of Gratuity Act and the definition of 'wages' there; their reasoning does not automatically apply to a differently worded provision containing an explicit definition of 'average pay.' The post-Jeevanlal legislative amendment to the Payment of Gratuity Act (an explanation prescribing division by 26) further demonstrates that the legislature knew how to incorporate a 26-day rule when intended; its absence in the Industrial Disputes Act implies that such a rule was not intended for Section 25F. Ratio vs. Obiter: Ratio - precedents construing the Payment of Gratuity Act cannot be transplanted to interpret 'average pay' under the Industrial Disputes Act where the latter contains an express definition requiring a different mode of computation. Observations about legislative amendment are part of the ratio distinguishing precedential applicability. Conclusions: The principle of 26 working days evolved under the Payment of Gratuity Act is inapplicable to computation of retrenchment compensation under Section 25F(b); that precedent is to be distinguished, not followed. Issue 3 - Whether employer complied with Section 25F(b) in the facts (payment adequacy and effect on legality of retrenchment) Legal framework: Section 25F(b) conditions retrenchment on payment of compensation equivalent to the statutory formula at the time of retrenchment. Precedent treatment: The Labour Court held shortfall in payment (applying the 26-day rule) and consequently declared retrenchment illegal and awarded reinstatement with 50% back wages. The instant Court reassessed amounts using the statutory definition of 'average pay.' Interpretation and reasoning: Applying Section 2(aaa)(i), the respondent's average pay equaled the undisputed monthly rate (Rs. 1,642/- as found by the Labour Court). The respondent's service of two years and one month entitled him to 30 days' average pay; 30 days' average pay at the monthly rate equals one month's wages (Rs. 1,642/-). The employer had given a cheque for Rs. 1,642/- at the time of retrenchment; therefore, statutory requirement of Section 25F(b) was satisfied. Ratio vs. Obiter: Ratio - where the statutory definition of 'average pay' yields a monthly rate equal to the employer's payment, Section 25F(b) is complied with and retrenchment is not rendered illegal for non-payment of compensation. The Labour Court's contrary finding based on an incorrect computation is set aside. Conclusions: The payment made by the employer at the time of retrenchment complied with Section 25F(b); retrenchment was lawful on that ground and the Labour Court's award of reinstatement and back wages was set aside. Cross-references and final holdings The Court cross-referenced Section 2(aaa) (definition of 'average pay') with Section 25F(b) (retrenchement compensation) and distinguished Payment of Gratuity Act authorities on both textual and legislative-history grounds; in consequence the Labour Court's 26-day divisor approach and resultant award were set aside, and the Court held that the employer had complied with Section 25F(b).