Bch Electric Limited vs Pradeep Mehra on 29 April, 2020


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Supreme Court of India

Bch Electric Limited vs Pradeep Mehra on 29 April, 2020

Author: Uday Umesh Lalit

Bench: Uday Umesh Lalit, Dinesh Maheshwari

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Civil Appeal No.2379 of 2020 (arising out of SLP (C) NO.5269 of 2019)
BCH Electric Limited Vs. Pradeep Mehra



                                                                            Reportable



                            IN THE SUPREME COURT OF INDIA

                             CIVIL APPELLATE JURISDICTION


                          CIVIL APPEAL NO. 2379 OF 2020
               [Arising Out of Special Leave Petition (C) No.5269 of 2019]



       BCH ELECTRIC LIMITED                                             …Appellant



                                               VERSUS



       PRADEEP MEHRA                                                    …Respondent



                                            JUDGMENT

Uday Umesh Lalit, J.

1. Leave granted.

2. This appeal challenges the judgment and order dated 12.2.2019

passed by the High Court1 dismissing Letters Patent Appeal No.97 of 2019

1 The High Court of Delhi at New Delhi
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BCH Electric Limited Vs. Pradeep Mehra

and thereby affirming the decision of the Single Judge of the High Court in

Writ Petition No.10318 of 2017.

3. By Trust Deed executed on 19.03.1979 between the appellant, a

company registered under the Indian Companies Act, 1956 on one hand

and three trustees on the other, an “Approved Gratuity Fund” was

constituted “for the purpose of providing Gratuities to the employees of the

Company under the Payment of Gratuity Act, 1972 (hereinafter referred to

as ‘the Act’) and the Gratuity Scheme of the Company”.

Clauses 4, 11 and 15(a) of the Trust Deed are as under:-

“4. RULES:

The Fund shall be governed by the Rules and any
reference to the Rules in these presents shall mean the
Rules for the time being in force which shall be
binding on the Members, their Beneficiaries and on
the Company. A copy of the current Rules is annexed
to and the same shall be deemed to form part of these
presents.

11. MEMBERS TO HAVE NO LEGAL RIGHT
Except as provided in these presents and in the Rules,
no Member or his Beneficiary shall have any legal
claim, right or interest in the Fund. Provided always
that the Trustees shall administer the Fund for the
benefit of the Members and their Beneficiaries in
accordance with the provisions of these presents and
the Rules.

15. PAYMENT OF GRATUITY:

(a) On behalf of the Company, the Trustees shall
provide for the payment of gratuity on termination of
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service, on death or retirement of the Member or
otherwise as provided in the Rules of Scheme.”

3.1 In the Rules appended to the Scheme the expressions “Company”,

“Employee” and “Gratuity” are defined as under:-

“2. (a) “Company” shall mean Bhartia Cutler
Hammer Limited and its successors or assigns or any
Company or body corporate which may by purchase
or amalgamation acquire or take over in whole or in
part, the undertaking of the company and with the
previous approval of the Commissioner undertakes to
perform the obligations of the Company under the
Trust Deed or the Rules.

………

(b) “Employee” shall mean a person in the
permanent, whole-time and bona fide employment of
the Company, including a whole-time Director, but
shall not include (i) any member of the staff who is or
may be on probation or who is temporary or part-time

(ii) any apprentice or (iii) a personal or domestic
servant.

… … …

(m) “Gratuity” shall mean Gratuity payable under
these Rules.”

3.2 Rules 4(b) and 6 of the Rules are as under:-

“4. (a) … … …

(b) The Company shall pay to the Trustees in
respect of each member an ordinary annual
contribution in each year based on an actuarial
valuation by a Qualified Actuary subject to Rule 103
of the Income Tax Rules 1962 or any statutory
enactment or any modification thereof from time to
time.

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6. A member on ceasing to be a member of the Fund
shall be entitled to be paid by the Trustees, the amount
due as computed in the manner laid down hereunder
in this Scheme: –

(a) The amount of Gratuity payable to the
beneficiary shall be calculated in the manner provided
in the Company’s Gratuity Scheme.

(b) Notwithstanding the provision herein
contained, if any member is covered by the provisions
of the Payment of Gratuity Act 1972, the amount of
gratuity shall be calculated in accordance with the
provisions of that Act.”

3.3 The Appendix to the Scheme prescribes the rates at which gratuity

will be payable as under:-

“Gratuity will be payable to the Employees to whom
the Payment of Gratuity Act, 1972 applies as per the
rates prescribed by the said Act.

Gratuity will be payable to the other employee of the
company at the following rates:-

(a) On the death or permanent total
physical disablement, while in the service
of the Company, or retirement at the age of
55 years or if retained by the Company
after 55 years, then at the time of
separation from the Company:

15 days basic salary for each completed
year of service subject to maximum of 20
months basis pay, payable to the
employees or payable to his heirs,
executors or nominee in case of death of
the employee.

(b) On termination of Service:

i. Beyond five years upto 8
years of continuous service at
the rate of 5 (five) days basic
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pay for every completed year of
service.

ii. Beyond 8 years upto 10
years of continuous service at
the rate of 10 days (ten) basic
salary for every completed year
of service.

iii. Beyond 10 years upto 15
years of continuous service at
the rate of 12 (twelve) days
basic salary for every completed
year of service.

iv. Beyond 15 years of
continuous service at the rate of
15 (fifteen) days basic salary for
every completed year of service
subject to maximum of 20
months basic salary.

(c) On resignation or voluntary
retirement:

After completion of 5 years of continuous
service or more at the rate of 15 days basic
salary per year of completed service,
subject to maximum of 20 months basic
pay provided that the management is
satisfied that such resignation or voluntary
retirement is in the interest of the
administration.

The rate of basic salary for payment of
Gratuity shall be the last pay drawn by the
employee.”

4. On 12.06.2000, the respondent was appointed as Chief Operating

Officer of the appellant-company with basic salary of Rs.1,05,000/- per

month on terms and conditions indicated therein. One of the terms was:-

“11. Gratuity
You will be entitled to gratuity on your becoming
eligible as per laws.”
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At the same time, one of the conditions was:-
“9. Your services will be governed by the Central
services Rules of the Company.”

5. The emoluments payable to the respondent were raised from time

to time. After having put in about 12 years’ of service, the respondent

resigned with effect from 01.06.2012 when his last drawn wages were

Rs.24,50,000/-per month. A sum of Rs.36,70,015/- was thereafter paid to

the respondent towards retiral dues. The respondent raised a claim that he

was entitled to gratuity amount of Rs.1,83,75000/-. By communication

dated 09.08.2012, a bank draft in the sum of Rs.10,19,452/- was forwarded

by the appellant to the respondent being the sum of Rs.10 Lakhs towards

gratuity along with interest accrued thereon from the date of cessation of

service of the respondent.

6. The respondent issued a legal notice on 19.10.2012, which was

followed by filing of a Claim Petition2 under Section 7 of the Act. It was

submitted that the emolument sheets issued to the respondent from time to

time indicated that a sum of 4.81% of his basic salary had been adjusted

towards gratuity; in the year 2007 the respondent was promoted to the post

of Chief Executive Officer and his emoluments had almost doubled; that

his emolument sheet dated 03.06.2011 acknowledged that the amount set
2 Claim Petition No.ALC-HOTB/36(66)/2012/ALC-1/36(203)/16-NK
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apart for contribution towards gratuity for that year alone was

Rs.11,54,400/-, and that various other employees had actually received

gratuities without any limit. It was thus prayed that the respondent was

entitled to the balance sum of Rs.1,73,75,000/- (Rs.1,83,75,000/- less

Rs.10,00,000/- which was received) towards gratuity along with interest at

the rate of 18% per annum.

7. In its reply to the claim petition, the appellant relied upon Clause

15 of the Trust Deed and Rule 6(b) of the Rules. It was submitted:-

”(iv) From bare reading of the above Clause 15 read
with Rule 6(b), it is apparent that the employees of the
respondent No.1 Company, if covered by the
provisions of the Gratuity Act were entitled for
gratuity in accordance with the provisions of the
Gratuity Act.

(v) As per the aforementioned prescribed scheme, the
gratuity was always determined as per the method
prescribed under the Gratuity Act and when the
gratuity for any employee exceeded the maximum
limit (as prescribed from time to time), under the
Gratuity Act, it was capped at the prevailing upper
limit at the relevant time i.e. the gratuity amount was
reduced so as to stay within the upper caps prescribed
by the Gratuity Act.”

While responding to the submission that some of the employees

had received gratuities in excess of Rs.10 lakhs, it was submitted that the

respondent as Chief Executive officer was responsible for making such
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excessive payments to said employees and that the respondent reserved its

rights to take appropriate remedy in that behalf. It was further stated:-

“In any event, the emoluments sheet never
mentioned that the provisions on the letter of
appointment, Trust Deed and provisions of the
Gratuity Act are not to be followed. The petitioner
was entitled to payment of gratuity as per the
Gratuity Act in accordance with the terms and
conditions of its letter of appointment and the Trust
Deed as referred above.”

8. By Order dated 31.07.2017, the Claim Petition was allowed by the

Controlling Authority under the Act. After referring to some of the

decisions of the High Court, it was observed:-

“The proposition of law that emerges from the
aforesaid judgment is that the employees are entitled
to receive higher gratuity amount under contract,
settlement, award, rules, regulations and schemes of
the employer in view of section 4(5) of the Act and an
employee can approach the controlling authority to
claim determination of his gratuity under the more
beneficial settlement, award, rules or scheme of the
employer.”

8.1. While dealing with the Scheme, it was observed:-

“The fact that the scheme of the respondents only talk
about the method of calculation of gratuity and does
not specially put any cap on the amount of gratuity
payable under the scheme, the fact that the said
scheme was never amended by the respondents to
incorporate any ceiling on gratuity, the fact that it
does not prescribe for any minimum qualifying
service and the fact that the several employees have
also been paid gratuity higher than the prescribed
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limit and that the management has continued to
earmark 4.81% of the basic of the applicant and other
co-employees, towards the gratuity and showing the
same as cost to company in emoluments sheet despite
the fact the that the said allocation had already
crossed the gratuity limits provided under the Act,
leaves no room for doubt that the respondents had
intended to make more liberal and beneficial gratuity
scheme by abandoning the cap on gratuity and
minimum qualifying service which otherwise has
been provided under the Act.”

8.2 In the premises, it was held:-

“The applicant is therefore entitled to gratuity under
the scheme without any cap. The gratuity is to be
calculated as per the formula of the Act as the
applicant is admittedly covered by the Act, as
provided in the scheme of the management, but the
gratuity has to be paid without any ceiling.”

8.3 The computation as regards the amount payable towards gratuity

was as under:-

“The last drawn salary of the applicant is therefore
taken as Rs.24,50,000/-. The gratuity payable under
the scheme is therefore determined as under:-

24,50,000 X 15 X 13/26 = 1,83,75,000/-
Since there is no cap on the gratuity under the scheme
of the employer, same is more beneficial to the
applicant and he is entitled to receive full gratuity
amount of Rs.1,83,75,000/- under the said scheme.”

9. The appellant being aggrieved, filed appeal before the Appellate

Authority under the Act challenging the aforesaid order dated 31.07.2017

passed by the Controlling Authority and applied for waiver of the

requirement of pre-deposit of the amount directed to be paid to the
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respondent. Submitting that said application for waiver was not being

considered by the Appellate Authority, Writ Petition (Civil) No.10319 of

2017 was preferred in the High Court by the appellant. The Writ Petition

was disposed of by the High Court on 22.11.2017 directing the appellant to

submit appropriate bank guarantee in the sum representing the amount of

gratuity along with interest till the date of filing of the appeal. After

compliance, the appeal was taken up for hearing. By order dated

23.03.2018 the appeal3 was dismissed by the Appellate Authority under the

Act with following observations:-

“The Gratuity Fund so created by the appellant to
regulate the gratuity of the employees is necessarily a
term of the service contract between the employer and
the employees as per requirement under Section 4(5)
of the Act.

The CA has rightly held that the amount of gratuity
under the scheme that does not provide any ceiling is
very well covered under the Section 4(5) of the Act”

10. The appellant filed Writ Petition No.3385 of 2018 in the High

Court challenging the Orders passed by the Authorities under the Act. By

its order dated 13.04.2018 the High Court stayed the operation of the orders

challenged upon the appellant furnishing appropriate bank guarantee. After

exchange of pleadings, the Writ petition was taken up for final disposal.

The submission advanced on behalf of the appellant was noted as under:-

3 No.36(26)/2017 P.A. DYC
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“As per clause 15 of this Trust Deed, the petitioner’s
employees are entitled to be paid gratuity out of the
aforesaid Fund on the termination of their service, on
death or retirement or otherwise as provided in the
“Rules of the scheme”. The Rules of the scheme and
the Appendix thereto provide for two modes of
computing an employee’s gratuity. For employees
covered under the PG Act, gratuity is to be calculated
in accordance with the provisions of the Act itself,
whereas for the other employees it is to be calculated
as per the relevant clauses in the Appendix. He,
however, submits that the rules for computing the
gratuity of other employees are now redundant in the
light of the Payment of Gratuity (Amendment) Act,
1994, which extended the applicability of the PG Act
to all the employees engaged in a company.

Resultantly, all the petitioner’s employees, including
the respondent are now covered under the PG Act
and, as per the express provisions of the petitioner’s
gratuity scheme, their gratuity has to be calculated as
per the statutorily prescribed rate and ceiling limit
under Sections 4(2) and 4(3) respectively.”

On the other hand the submission of the respondent on the point

was noted as under:-

“the respondent’s claim for gratuity in excess of the
ceiling limit prescribed under Section 4(3), is not in
conflict with the provisions of the PG Act. In fact,
contrary to what has been contended by the petitioner,
Section 4(5) categorically protects the respondent’s
right to receive gratuity under better terms than those
prescribed under the said Act.”

10.1. While considering these submissions, it was observed:-

“24. In my considered opinion, there is nothing in
the Trust Deed dated 19.03.1979 or the Rules
thereunder that curbs the respondent’s entitlement to
gratuity to the ceiling limit prescribed under Section
4(3)
. The relevant Rule 6(b) of petitioner’s gratuity
scheme only stipulates that the amount of gratuity
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payable to an employee shall be calculated in
accordance with the provisions of the PG Act. The
“provisions of the PG Act” is a broad phrase that not
only contemplates the rate statutorily prescribed under
Section 4(2) and the ceiling limit under Section 4(3),
but also the exception carved out under Section 4(5)
for employees who have better terms of gratuity under
an award, or agreement/contract with the petitioner.
Therefore, in the absence of a specific clause that caps
the maximum amount of gratuity payable to the
respondent, a broad stipulation in Rule 6(b) that
gratuity will be calculated as per the provisions of the
PG Act, cannot be construed to mean that the ceiling
limit under Section 4(3) is applicable to the
respondent. To my mind, such an interpretation
would amount to selectively applying only Section
4(3)
of the Act, by ignoring the mandate of Section
4(5)
, when Rule 6(b) in itself contemplates the
provisions of the PG Act as a whole.

25. In other words, Rule 6(b) merely reiterates
what is apparent on a plain reading of Section 4 of the
PG Act, i.e., the respondent is entitled to a maximum
of Rs.10,00,000/- as gratuity, unless there is an award,
or contract/agreement whereunder he can claim
gratuity in excess of the aforesaid ceiling limit. The
said Rule is so broadly drafted that read by itself, it
cannot be construed to contemplate only the ceiling
limit under Section 4(3) of the PG Act, but also
indicates the provisions of Section 4(5). Similarly,
the Appendix to the aforesaid Rules only stipulates
that the respondent’s gratuity shall be calculated as
per the rates prescribed under the PG Act, i.e., under
Section 4(2). However, it does not in any way
stipulate that he is subject to the statutory limit
prescribed under Section 4(3).

26. Now coming to clause 11 of the respondent’s
terms of appointment which, as per the contentions of
the learned counsel for the petitioner, clearly lays
down that the respondent is only entitled to a
maximum gratuity of Rs.10,00,000/- as prescribed
under the PG Act. I am of the view that there can be
two possible interpretations of Clause 11. In the first
sense, the phrase “as per laws” can be read to qualify
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the word “eligible” so that Clause 11 suggests that the
respondent shall be entitled to receive gratuity on his
meeting the eligibility criteria laid down by the laws
in force. For obvious reasons, this particular
interpretation of the clause cannot in any way be read
to impose a limit on the amount of gratuity payable to
the respondent. In the second sense, which is the
interpretation that has been relied upon by the learned
counsel for the petitioner, Clause 11 can be read to
suggest that the respondent shall be entitled to
gratuity “as per laws” on his becoming eligible. In
this sense also, the phrase “as per laws” is at best a
broad stipulation that takes within its sweep not only
the provisions of Sections 4(2) and 4(3), but also of
Section 4(5). Like Rule 6(b) under the Trust Deed
dated 19.03.1979, the interpretation of clause 11
relied upon by Mr. Sethi has such a broad implication
that it cannot be read so selectively to apply the
ceiling limit under Section 4(3) to the amount of
gratuity that can be claimed by the respondent. Thus,
looked at from every possible angle, there is nothing
in the documents relied upon by the learned counsel
for the petitioner that curbs the gratuity payable to the
respondent to the statutory ceiling limit under Section
4(3)
.”

10.2. As regards, the decision of this Court in Beed District Central

Cooperative Bank Ltd. v. State of Maharashtra and others 4 , it was

observed:-

“31.Similarly, the decision in Beed District Central
Coop. Bank Ltd. v. State of Maharashtra and Ors
. 4,
is also not applicable to the present case. In that
case, the appellant/employer’s internal gratuity
scheme provided a better rate for computing the
gratu9ity of the respondent/workman, but the ceiling
limit thereunder was lower than that prescribed by the
PG Act. When the respondent/workman sought to
avail the benefit of the appellant/employer’s internal
gratuity scheme as also the ceiling limit under the PG
Act, the Supreme Court held that the
4 (2006) 8 SCC 514
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respondent/workman must either avail the benefit of
his contract with the appellant/employee in its entirety
or the statute. He cannot avail the better terms of his
contract with appellant/employer and at the same time
keep his options open in respect of a part of the statute
that suits him.”

The Single Judge of the High Court, thus by order dated

06.02.2019 dismissed the aforesaid Writ Petition as well as connected

petitions.

11. The matter was carried further by the appellant by filing Letters

Patent Appeal No. 97 of 2019 before the Division Bench of the High Court

which by its judgment and order dated 12.02.2019 affirmed the view taken

by the Single Judge and dismissed the appeal. The Division Bench

considered the decision of this Court in Beed District Central Cooperative

Bank Ltd. 4 and found as under:-

“18. … …There, the employees had opted for the
Scheme of the Management which was less
advantageous than the PGA. Their plea that they
should be given gratuity as per the then upper limit as
per the PGA was negative. It was held by the
Supreme Court that an employee while reserving his
right to opt for the beneficient provisions of the
statute or the agreement had to opt “for either of them
and not the best of the terms of the statute as well as
those of the contract.” In the present case, the
Appellant’s Gratuity Scheme, which was relied upon
by the Respondent, itself provided for the rates as per
Section 4(2) of the PGA but without the upper limit
under Section 4(3) PGA. By opting for the
Appellant’s Scheme, the Respondent did not lose the
benefit of Section 4(2) PGA.

… … …
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20. The Court finds that not all elements of the PGA
have been adopted in the Gratuity Scheme of the
Appellant. While the ‘rate’ stipulated under Section
4(2) PGA has been adopted, the ceiling limit under
Section 4(3) of the PGA has not. As noted both by the
CA and the learned Single Judge, the Appellant itself
calculated the gratuity not just in the case of the
Respondent but in the cases of ten other employees.
The Chairman and Managing Director (CMD) of the
Appellant would decide the emoluments of the
Respondent and issue EES which invariably
contained an entry towards gratuity, which amount
was computed at the rate of 4.81% of the
Respondent’s annual basic salary. The EEs were
issued under the signature of the CMD before being
handed over to the Respondent in original, thereby
becoming a part of the contract between the Appellant
and the Respondent. In 2007-08 the gratuity amount
was Rs.6,34,920/- which was nearly twice the then
ceiling limit of Rs.3.5 lakhs under the PGA. In 2011-
12 it was Rs.11,54,400/- which was higher than the
ceiling limit of Rs.10 lakhs.”

12. In this appeal challenging the view taken by the High Court, we

heard Mr. C.U. Singh, learned Senior Advocate for the appellant and Mr.

J.P. Cama, learned Senior Advocate for the respondent.

13. In the submission of Mr. C.U. Singh, learned Senior Advocate, the

respondent was clearly covered by the Payment of Gratuity Act, 1972 and

subject to the ceiling or limit of Rs.10 lacs as provided under Section 4(3).

He submitted that while an employee would be entitled to receive

better terms of gratuity under Section 4(5) of the Act, such better terms

could be claimed only under specific circumstances as set out in Section
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4(5); that at no stage any claim was raised regarding existence of any

award, agreement or contract nor was there any pleading about the

existence of any award, agreement or contract. It was further submitted

that in terms of law laid down by this Court in Beed District Central

Cooperative Bank Ltd.4 and Union Bank of India and others vs. C.G.

Ajay Babu and Another5 either the statutory provisions or the contractual

scheme can be followed and not a combination of both the elements.

14. In response, it was submitted by Mr. J.P. Cama, learned Senior

Advocate for the respondent that since Section 4(5) of the Act has been

given overriding effect over other provisions of Section 4, as held by this

Court in Union Bank of India6, it would override the provisions of

Section 3 of the Act and as such, all that the respondent needed to show

was that the appellant had a scheme for its employees (contract) and that it

did not prescribe any ceiling and that such a scheme would be protected

by Section 4(5) of the Act. As regards the applicability of Rule 6(b) of the

Scheme, it was submitted:-

“It is true that Rule 6(b) contains a non-obstante
clause. However, Section 4(5) also contains a non-

obstante clause. Section 4(5) being a statutory
provision, will prevail. In any case Rule 6(b) must
also be reconciled with Rule 6(a) which makes “the
Company’s Gratuity Scheme” applicable to every

5 (2018) 9 SCC 529
6 (2018) 9 SCC 529
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member, otherwise Rule 6(a) would become otiose.
Thus, if “the Company’s Gratuity Scheme” is more
beneficial than the Act, Rule 6(a) will get its play.
There is nothing in Rule 6(b) that excludes a more
beneficial scheme under Section 4(5) and / or Rule
6(a).”

15. Before we deal with the rival submissions, the effect of various

amendments making changes in Section 2(e), Section 4(2) and Section 4(3)

of the Act are required to be considered. The Act was enacted in the year

1972 “to provide for a scheme for the payment of gratuity to employees

engaged in factories, mines, oilfields, plantations, ports, railway

companies, shop or other establishments and for matters connected there

with and incidental thereto”. The expression “employee” as originally

defined in Section 2(e) was as under:-

“(e) “employee” means any person (other than an
apprentice) employed on wages, not exceeding one
thousand rupees per mensem, in any establishment,
factory, mine, oilfield, plantation, port, railway
company or shop, to do any skilled, semi-skilled, or
unskilled, manual, supervisory, technical or clerical
work, whether the terms of such employment are
express or implied, but does not include any such
person who is employed in a managerial or
administrative capacity, or who holds a civil post
under the Central Government or a State Government,
or who is subject to the Air Force Act, 1950, the Army
Act
, 1950, or the Navy Act, 1957.

Explanation.- In the case of an employee, who,
having been employed for a period of not less than
five years on wages not exceeding one thousand
rupees per mensem, is employed at any time
thereafter on wages exceeding one thousand rupees
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per mensem, gratuity, in respect of the period during
which such employee was employed on wages not
exceeding one thousand rupees per mensem, shall be
determined on the basis of the wages received by him
during that period;”

The original text of Sub-Sections (2) and (3) of Section 4 of the

Act was as under:-

“Payment of gratuity:

4. (1) … … …

(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 employed in a seasonal
establishment, the employer shall pay the
gratuity at the rate of seven days’ wages for
each season.

(3) The amount of gratuity payable to an employee
shall not exceed twenty months’ wages.

(4) to (6) … … …”

15.1 By Act 25 of 1984 the expression “one thousand six hundred

rupees” was substituted in place of expression “one thousand rupees” in
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BCH Electric Limited Vs. Pradeep Mehra

Section 2(e). Further, in explanation to Section 2(e), similar expression

“one thousand six hundred rupees” was substituted at two places for “one

thousand rupees”. Similarly, expression “and whether or not such person

is employed in a managerial or administrative capacity” was inserted in

Section 2(e) before the clause beginning with “but does not include any

person who holds the post under the Central Government …”.

15.2 By Act 22 of 1987 further amendments were effected and

expression “two thousand five hundred rupees per mensem or such higher

amount the Central Government may, having regard to the general level

of wages, by notification specify” was substituted in place of “one

thousand six hundred rupees per mensem” in the main part of Section 2(e)

defining “employee”. Similarly, for the expression “one thousand six

hundred rupees per mensem”, the expression “that amount” was

substituted at two places in the Explanation to Section 2(e). Said

amendment Act also inserted following explanation after Second Proviso

to Sub-Section (2) of Section 4.

“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.”
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BCH Electric Limited Vs. Pradeep Mehra

Sub-Section (3) of Section 4 was also amended and instead of

“twenty months’ wages” the expression “fifty thousand rupees” was

substituted.

15.3 In exercise of power conferred upon it, the Central Government by

Notification No. S.O. 863 (E), dated 26.11.1992 raised the “higher

amount” of wages referred to in Section 2(e) of the Act to “three

thousand and five hundred rupees”.

15.4 Act 35 of 1994 made further amendments and expression “not

exceeding two thousand five hundred per mensem, or such higher

amount as the Central Government may, having regard to the general

level of wages, by notification specify” occurring in Section 2(e) was

omitted. The explanation to Section 2(e) was also omitted.

Consequently, the definition of “employee” now ceased to have any

limit on wages and all employees, who otherwise answer the description

in the definition, regardless of wages that they would receive, now stand

covered.

This Amendment Act also substituted expression “one lakh” in

place of the earlier expression “fifty thousand” occurring in Section 4(3)

of the Act.

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BCH Electric Limited Vs. Pradeep Mehra

15.5 By Act 47 of 2009, for Clause (e) of Section 2 following Clause

was substituted:-

“(e) “employee” means any person (other
than an apprentice) who is employed for
wages, whether the terms of such employment
are express or implied, in any kind of work,
manual or otherwise, in or in connection with
the work of a factory, mine, oilfield,
plantation, port, railway company, shop or
other establishment to which this Act applies,
but does not include any such person who
holds a post under the Central Government or
a State Government and is governed by any
other Act or by any rules providing for
payment of gratuity;”

15.6 The ceiling limit of “one lakh rupees” as stipulated in Section 4(3)

of the Act was successively raised by Act 11 of 1998 and by Act 15 of

2010 to “rupees three lakhs and fifty thousand rupees” and “ten lakh

rupees” respectively.

15.7 By Act 12 of 2018 the expression “ten lakh rupees” now stands

substituted by the expression “such amount as may be notified by the

Central Government from time to time”.

15.8 The provisions of Section 2(e) and Section 4 of the Act, as they

stand this date, are as under:-

Section 2(e)

“employee” means any person (other than an
apprentice who is employed for wages, whether the
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BCH Electric Limited Vs. Pradeep Mehra

terms of such employment are express or implied, in
any kind of work, manual or otherwise, in or in
connection with the work of a factory, mine, oilfield,
plantation, port, railway company, shop or other
establishment to which this Act applies, but does not
include any such person who holds a post under the
Central Government or a State Government and is
governed by any other Act or by any rules providing
for payment of gratuity;”

Section 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
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BCH Electric Limited Vs. Pradeep Mehra

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
riot 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 three lakhs and fifty thousand]
rupees.

(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,
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Civil Appeal No.2379 of 2020 (arising out of SLP (C) NO.5269 of 2019)
BCH Electric Limited Vs. Pradeep Mehra

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”

16. Thus, as on the day, when the respondent resigned from his

service, that is on 01.06.2012, the relevant ceiling in Sub-Section (3) of

Section 4 was at the level of “ten lakh rupees” and for an employee to be

covered by the definition obtaining in Section 2(e) of the Act, there was

no wage-bracket or ceiling.

17. In terms of Section 4(1) of the Act gratuity shall be payable to an

employee in the eventualities referred to therein if he had rendered

continuous service for not less than five years. Explanation to Section 4(2)

inter alia states that the gratuity shall be payable at the rate of 15 days’

wages for every completed year of service or part thereof in excess of six

months. Explanation to Section 4(2) lays down how the gratuity is to be
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BCH Electric Limited Vs. Pradeep Mehra

calculated, while Section 4(3) stipulates that the amount of gratuity payable

to an employee shall not exceed certain limit and thus puts a cap on the

amount payable towards gratuity. Section 4(5) then states that nothing in

said Section shall affect the right of an employee to receive better terms of

gratuity under “any award or agreement or contract with the employer”.

18. For Section 4(5) of the Act, to get attracted, there must be better

terms of gratuity available and extendable to an employee “under any

award or agreement or contract with the employer” as against what has

been provided for under and in terms of the Act. In other words, as against

what is made applicable by the Act, if better terms are available under any

such arrangement with the employer, Section 4(5) stipulates that nothing in

Section 4 shall affect the right of any employee to receive such better

terms. Thus, when two choices are available, one under provisions of the

Act and one under such arrangement with the employer and if the latter

offers better terms, the employee cannot be denied right to receive those

higher benefits.

19. But the question still remains whether in the present case there was

such a choice available or not. According to Mr. C.U. Singh, learned Senior

Advocate, the case of the respondent would be clearly covered by the

provisions of the Act and not under the Scheme at all. Similar submissions
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Civil Appeal No.2379 of 2020 (arising out of SLP (C) NO.5269 of 2019)
BCH Electric Limited Vs. Pradeep Mehra

were advanced on behalf of the appellant before the High Court, as noted

by the Single Judge. However, the submissions were rejected after placing

reliance on Section 4(5) of the Act.

20. We must, therefore, see what exactly has been provided for in the

Trust Deed, Scheme and the Rules framed thereunder. The Trust Deed was

executed “for the purpose of providing gratuities to the employees of the

company under the Payment of Gratuity Act”. Clause 15 of the Trust Deed

casts an obligation on the trustees to provide payment of gratuity upon

termination of service or upon death or retirement of service of the

Member “as provided in the Rules of Scheme” Rule 6(b) of the Rules

clearly stipulates that notwithstanding the Scheme of the Company, if any

member is covered by the Act, the amount of gratuity shall be calculated in

accordance with the provisions of the Act. Similar thought is expressed in

the Appendix to the Scheme which prescribes the rates at which the

gratuity is to be paid.

The Scheme thus divides the employees in two categories. First,

the employees to whom the Act applies and with respect to whom the

amount of gratuity shall be “calculated in accordance with the provisions

of the Act and as per the rates prescribed by the Act”; the Second category

of employees are those to whom the Act does not apply. According to said
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BCH Electric Limited Vs. Pradeep Mehra

Rule 6(b) and Appendix, the calculation of amount of gratuity at the rates

prescribed in the manner laid down in the Appendix, is to be done only in

the case of employees in the Second category.

21. The intent of the Trust Deed and the Scheme is thus clear that the

governing principles as regards the amount to be calculated and the rates to

be applied have to be in accordance with the provisions of the Act, if an

employee is covered by the provisions of the Act. If the amount is to be so

calculated according to the provisions of the Act, in case of employees

covered by the provisions of the Act, there is no other alternative which is

offered by the Company or which is part of any award or agreement or

contract entered into between the employer and employees. Thus, no

reliance could be placed on Section 4(5) of the Act to submit that the

employees are entitled to some greater advantage than what is available

under the Act. As stated earlier, for Section 4(5) to apply there must be

two alternatives, one in terms of the Act and one as per the award or

agreement or contract with the employer. The Scheme on which heavy

reliance was placed to submit that it afforded and made available better

terms of gratuity itself emphasizes that in case of the employees who are

covered under the Act, the amount payable as gratuity shall be in terms of

the provisions of the Act. The Scheme does not therefore offer to the
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BCH Electric Limited Vs. Pradeep Mehra

employees covered by the Act any other alternative apart from what is

payable under the Act.

22. Rather than making available an alternative to the model and

modalities of calculation of amount of gratuity, as placed on statute book

by the provisions of the Act, the Trust Deed and the Scheme contemplates

two kinds of employees. One, who are covered under the provisions of the

Act and the other, who are not so covered. The historical background and

the changes that the provisions of Section 2(e) and Section 4 have

undergone show that not all employees were initially sought to be covered

under the Act. Those, who were in wage-brackets greater than what was

stipulated in Section 2(e) till it was finally amended to do away with the

wage-bracket, were not covered by the Act. The Trust Deed and the

Scheme sought to devise an apparatus and make provision for those who

were otherwise not covered by the Act and for this reason contemplated

two kinds of employees. The Trust Deed and the Scheme were executed

and formulated in the year 1979 when the wage-bracket was a definite

parameter for an employee to be covered under the Act. The intent of the

Trust Deed and the Scheme has to be understood in that perspective. The

idea was not to afford to the employees who are covered by the provisions

of the Act, a package better than what was made available by the Act, but
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BCH Electric Limited Vs. Pradeep Mehra

it was to extend similar benefit to those who would not be covered by the

Act.

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
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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.

24. We have, therefore, no hesitation in holding that the Authorities

under the Act and the High Court erred in accepting the claim preferred by

the respondent. We hold that the appellant was right in going by the

provisions of the Act in the present matter and by the ceiling prescribed

under Section 4(3) of the Act. Any mistakes on its part in making some

extra payments to some of the other employees would not create a right in

favour of others in the face of the stipulations in the Trust Deed and the

Scheme.

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BCH Electric Limited Vs. Pradeep Mehra

25. We, therefore, allow this appeal, set aside the impugned judgment

and order and dismiss the Claim Petition preferred by the respondent. No

costs.

..…………………….J.

(Uday Umesh Lalit)

……..……………….J.

(Sanjiv Khanna)

New Delhi;

April 29, 2020.

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2382 OF 2020
[Arising Out of Special Leave Petition (C) No.6307 of 2019]

M/S BCH ELECTRIC LIMITED …. APPELLANT

VERSUS

DIBYENDU BHATTACHARJEE …. RESPONDENT

WITH

CIVIL APPEAL NO. 2380 OF 2020
[Arising Out of Special Leave Petition (C) No.6322 of 2019]

AND

CIVIL APPEAL NO. 2381 OF 2020
[Arising Out of Special Leave Petition (C) No.6164 of 2019]

ORDER

Uday Umesh Lalit, J.

1. Leave granted.

2. Appeals from SLP (Civil) Nos.6307 and 6322 arise from the final

judgments and orders dated 13.02.2019 passed by the High Court in L.P.A.

Nos.102 of 2019 and 103 of 2019 respectively while appeal from SLP

(Civil) No.6164 of 2019 arises from the final judgment and order dated

15.02.2019 passed by the High Court in LPA No.110 of 2019 where the
view taken in decision dated 12.02.2019 in L.P.A. No.97 of 2019 was

followed and the concerned L.P.As were dismissed.

3. Since we have allowed the appeal against the decision dated

12.02.2019, these appeals are allowed in terms of our judgment in Civil

Appeal arising from SLP(C) No.5269 of 2019. No Costs.

..…………………….J.

(Uday Umesh Lalit)

……..……………….J.

(Sanjiv Khanna)

New Delhi;

April 29, 2020.



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