WWW.LIVELAW.IN “CR” V. CHITAMBARESH, SHAJI P. CHALY & SATHISH NINAN, JJ. =========================== WP(C) Nos.19892/2009, 29976/2009, 16424/2010, 23025/2010, 23740/2010, 36143/2010, 37322/2010, 20696/2011, 34856/2011, 13576/2012, 25575/2012, 30660/2012, 30702/2012, 31071/2012, 14773/2013, 14774/2013, 14825/2013, 17833/2013, 27507/2013, 28286/2013, 1453/2014, 17418/2014, 18549/2014, 20112/2015, 20519/2015, 36685/2016 4829/2017 & 12718/2017 =========================== Dated this the 18th day of September, 2017 ORDER Chitambaresh, J. 1.Too many cooks spoil the broth and too many judgments on a point add to the confusion. We shall rest our conclusion mainly on the statutory provisions therefore for clarity.
2.The term 'gratuity' has neither been defined in the Payment of Gratuity Act, 1972 ['the Central Act' for short] nor in the
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Kerala Co-operative Societies Act, 1969 ['the State Act' for short]. But decisions are legion that 'gratuity' is deferred wages to the employee and is a reward for having rendered long and unblemished service thereby contributing to the prosperity of the employer. Section 4 of the Central Act provides for the payment of gratuity and is as follows:
“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
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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
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shall not be taken into account: Provided further that in the case of an employee
who
establishment
is and
employed who
is
in
not
a so
seasonal 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 diving 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 ten lakh 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
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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.” (emphasis supplied)
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Section 62 of the State Act provides for the payment of gratuity to the employees of a society and is as follows:
“62. Gratuity.-The employees of a society shall be entitled to gratuity at such rates and on such conditions as prescribed.”
The Government has the power to make rules for the whole or any part of the State and for any class of societies either prospectively or retrospectively to carry out the purposes of the State Act under Section 109 thereof. Rule 59 of the Kerala Co-operative Societies Rules, 1969 ['the Rules' for short] prescribes the eligibility for gratuity and is as follows:
“59. Gratuity.-Every society shall make in its byelaws provision for payment of gratuity to its employees
and
administration.
frame Among
regulations other
for
matters
regulations shall provide for the following-
its such
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(i)
all
monthly
paid
employee
on
the
permanent establishment shall be eligible for gratuity; (ii) service rendered by employees must be continuous and satisfactory; (iii) when an employee who has put in at least
5
years
satisfactory
service
is
retired
voluntarily from service or if he is permanently disabled while in service or if he dies while in service the society shall pay to him or to his legal heirs as the case may be a gratuity not exceeding half months pay for every completed year of service: Provided that in no case shall the gratuity exceed fifteen months pay. Provided further that the amount of gratuity payable shall not exceed the amount which an employee is eligible as per the Payment of Gratuity Act, 1972 (Central Act 39 of 1972) or under the Act and these Rules, which ever is applicable irrespective of the amount received out of any scheme chosen or implemented by a society for the purpose.” (emphasis supplied)
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The Division Bench has doubted the correctness of the decision in Nedupuzha Service Co-operative Bank Ltd. v. Rugmini [2011(3) KLT 134(DB)] which has led to this reference to the Full Bench. The incongruity between the second proviso to Rule 59(iii) of the Rules substituted with effect from 2.11.2010 and Section 4(5) of the Central Act has also been indicated in the reference order.
3.The liability to pay gratuity to an employee is always on the employer under Section 4(2) of the Central Act and is at the rate of fifteen days' wages for every completed year of service or part thereof in excess of six months.This does not however affect the right of the employee to receive better terms of gratuity under any award or agreement or contract with the employer under Section 4(5) of the Central Act. The employee need not necessarily be an eo-nominee party to
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the award or agreement or contract which could be entered into by any one duly authorised by him. Section 4(5) of the Central Act has been widely couched to take in service conditions regulating the terms of gratuity to which the employee is entitled to receive. We approve the decision in Kerala Forest Research Institute, Peechi v. Dr. C.Renuka and others [2015 KHC 926] authored by the Chief Justice Ashok Bhushan (as he then was). Some times a trust deed is entered into by the employer and the representatives of the employee wherein the employer is the trustee and the employee is the beneficiary of the trust. Such a trust deed is executed as part of the service conditions of the employee in order to vouchsafe the payment of gratuity by the employer at the time of exit from service. The doctrine of privity of contract is subject to many exceptions - one of them being that a beneficiary can sue on a contract for enforcement of the benefit intended to confer on him thereunder. This is so
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since Section 2(d) of the Indian Contract Act, 1872 widens the definition of 'consideration' [see: Sankaranarayanan v. Krishnan [1963 KLT 94]. The proposition of law has been elucidated in M.C.Chacko v. The State Bank of Travancore [AIR 1970 SC 504] as follows:
“Under the English Common Law only a person who is a party to a contract can sue on it and that the law knows nothing of a right gained by a third party arising out of a contract: Dunlop Pneumatic Tyre Co. v. Seltridge and Co., 1915 AC 847. It has however been recognised that where a trust is created by a contract, a beneficiary may enforce the rights which the trust so created has given him. The basis of that rule is that though he is not a party to the contract his rights are equitable and not contractual. The Judicial Committee applied that rule to an Indian case Khwaja Muhammad Khan v. Husaini Begam, (1910) 37 Ind App 152. In a later case Jamna Das v. Ram Autar, (1911)
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39 Ind App 7 the Judicial Committee pointed out that the purchaser's contract to pay off a mortgage debt could not be enforced by the mortgagee who was not a party to the contract. It must therefore be taken as well settled that except in the case of a beneficiary under a trust created by a contract or in the case of a family arrangement, no right may be enforced by a person who is not a party to the contract.” (emphasis supplied)
4.We have also come across a master policy being taken by the employer supported by terms and conditions whereby the payment of gratuity is covered by insurance of the Life Insurance Corporation of India. A compulsory insurance has been
brought
in
by
Section
4A
of the
Central
Act
(implemented in the State of Kerala with effect from 13.9.2013) which reads as follows:
“4A. Compulsory insurance.-(1) With effect from
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such date as may be notified by the appropriate Government in this behalf, every employer, other than an employer or an establishment belonging to,
or
under
the
control
of,
the
Central
Government or a State Government, shall, subject to the provisions of sub-section (2), obtain an insurance in the manner prescribed, for his liability for payment towards the gratuity under this Act, from the Life Insurance Corporation of India
established
under
the
Life
Insurance
Corporation of India Act, 1956 (31 of 1956) or any other prescribed insurer: Provided
that
different
dates
may
be
appointed for different establishments or class of establishments or for different areas. (2) The appropriate Government may, subject to such conditions as may be prescribed, exempt every employer who had already established an approved
gratuity
fund
in
respect
of
his
employees and who desires to continue such arrangement, and every employer employing five hundred or more persons who establishes an approved gratuity fund in the manner prescribed
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from the provisions of sub-section (1). (3)
For
the
purpose
of
effectively
implementing the provisions of this section, every employer shall within such time as may be prescribed get his establishment registered with the controlling authority in the prescribed manner and no employer shall be registered under the provisions of this section unless he has taken an insurance referred to in sub-section (1) or has established an approved gratuity fund referred to in sub-section (2). (4) The appropriate Government may, by notification, make rules to give effect to the provisions of this section and such rules may provide for the composition of the Board of Trustees of the approved gratuity fund and for the recovery by the controlling authority of the amount of the gratuity payable to an employee from the Life Insurance Corporation of India or any other insurer with whom an insurance has been taken under sub-section (1), or as the case may be, the Board of Trustees of the approved gratuity fund.
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(5) Where an employer fails to make any payment by way of premium to the insurance referred to in sub-section (1) or by way of contribution to an approved gratuity fund referred to in sub-section (2), he shall be liable to pay the amount of gratuity due under this Act (including interest, if any, for delayed payments) forthwith to the controlling authority. (6) Whoever contravenes the provisions of sub-section (5) shall be punishable with fine which may extend to ten thousand rupees and in the case of a continuing offence with a further fine which may extend to one thousand rupees for each day during which the offence continues. Explanation.-In
this
section,
“approved
gratuity fund” shall have the same meaning as in clause (5) of section 2 of the Income-tax Act, 1961 (43 of 1961).” (emphasis supplied)
5.The liability to pay gratuity does not get shifted to the insurer by the compulsory insurance and the effect is only that the maturity value of the master policy would go to the
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credit of the dues of the employee. Any amount in excess of the gratuity due would also go to the employee since the contract of insurance would fall within the ambit of Section 4 (5) of the Central Act. Any deficit in the amount due as gratuity to the employee after payment by the insurer has to be met by the employer only as the liability squarely rests on him under Section 4(2) of the Central Act. The insurer cannot be made liable to pay any amount in excess of the maturity value of the master policy as the same would be dependent on the premium paid to him. The compulsory insurance under Section 4A of the Central Act is only to facilitate the employer to discharge his liability and the premium paid is part of the wages only. Of course the wording of the second proviso to Rule 59(iii) of the Rules gives rise to a doubt that the employee would be pinned down to the amount of gratuity specified in the Central Act. Such an interpretation would render Section 4(5) of the
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Central Act otiose whereunder the employee has a right to receive better terms of gratuity under any award or agreement or contract with the employer. The provisions of the Central Act or any rule made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other enactment or instrument or contract. The overriding effect of the Central Act over other enactments is explicit from Section 14 of the Central Act which is to the following effect:
“14. Act to override other enactments, etc.-The provisions of this Act or any rule made thereunder shall
have
effect
notwithstanding
anything
inconsistent therewith contained in any enactment other than this Act or in any instrument or contract having effect by virtue of any enactment other than this Act.”
6.The co-operative societies wherein the employees are
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engaged is Entry 32 of List II - State List and gratuity to which a claim is laid is Entry 24 of List III - Concurrent List of the Seventh Schedule to the Constitution of India. The Central Act which is the law made by the Parliament shall prevail over the law made by the Legislature of the State i.e. the second proviso to Rule 59(iii) of the Rules. The inconsistency between laws made by Parliament and laws made by the Legislatures of States can be ironed out by calling in aid Article 254 of the Constitution of India. The same reads as follows:
“254.
Inconsistency
between
laws
made
by
Parliament and laws made by the Legislatures of States.-(1) If any provision of a law made by the Legislature of a State is repugnant to any provision of a law made by Parliament, which Parliament is competent to enact, or to any provision of an existing law with respect to one of the matters enumerated in the Concurrent List,
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then, subject to the provisions of clause (2), the law made by Parliament, whether passed before or after the law made by the Legislature of such State, or, as the case may be, the existing law, shall prevail and the law made by the Legislature of the State shall, to the extent of the repugnancy, be void. (2) Where a law made by the Legislature of a State
with
respect
to
one
of
the
matters
enumerated in the Concurrent List contains any provision repugnant to the provisions of an earlier law made by Parliament or an existing law with respect to that matter, then, the law so made by the Legislature of such State shall, if it has been reserved for the consideration of the President and has received his assent, prevail in that State: Provided that nothing in this clause shall prevent Parliament from enacting at any time any law with respect to the same matter including a law adding to, amending, varying or repealing the law so made by the Legislature of the State.” (emphasis supplied)
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There is no case that the second proviso to Rule 59(iii) of the Rules made by the Legislature of the State has received the assent of the President in order to prevail in the State under Article 254(2) of the Constitution of India. Every amendment to the State Act or the Rules has also to obtain the assent of the President which is absent in regard to the second proviso to Rule 59(iii)
of the Rules. The irresistible
conclusion is that Section 4(5) of the Central Act which enables an employee to opt for a better terms of gratuity will prevail over the second proviso to Rule 59(iii) of the Rules. Only the case of employees who are both covered under the Central Act and the Rules framed under the State Act is dealt with in this bunch of writ petitions since the Central Act does not apply to all establishments. Section 1(3)(b) of the Central Act is categoric that the same applies only to an establishment in which ten or more persons are employed or were employed during the preceding twelve months.
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7.The dominant intention of the Central Act is to provide for a scheme for the payment of gratuity to employees engaged in factories,
mines,
oilfields,
plantations,
ports,
railway
companies, shops or other establishments. The dominant intention of the State Act is to provide for the orderly development of the co-operative societies in the State as self-governing democratic institutions. A provision in the Central Act to give effect to its dominant purpose may incidentally be on the same subject as covered by the provision in the State Act. But such partial coverage of the same area in a different context and to achieve a different purpose does not bring about the repugnancy which is intended to be covered by Article 254(2) of the Constitution. We shall quote the decision in Vijay Kumar Sharma v. State of Karnataka [(1990) 2 SCC 562] wherein it is held as follows:
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“53. The aforesaid review of the authorities makes it clear that whenever repugnancy between the State and Central legislation is alleged, what has to
be
first
examined
is
whether
the
two
legislations cover or relate to the same subject matter. The test for determining the same is the usual one, namely, to find out the dominant intention of the two legislations. If the dominant intention i.e. the pith and substance of the two legislations is different, they cover different subject matters. If the subject matters covered by the legislations are thus different, then merely because the two legislations refer to some allied or cognate subjects they do not cover the same field. The legislation, to be on the same subject matter must further cover the entire field covered by the other. A provision in one legislation to give effect to its dominant purpose may incidentally be on the same subject as covered by the provision of the other legislation. But such partial coverage of the same area in a different context and to achieve a different purpose does not bring about
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the repugnancy which is intended to be covered by Article 254(2). Both the legislations must be substantially on the same subject to attract the article.” (emphasis supplied)
There is no repugnancy (in the sense that one Act cannot be obeyed without disobeying the other) and therefore every endeavor has to be made to reconcile the provisions and give a harmonious construction.
8.The following decisions were cited at the Bar by the counsel for either sides:
(i)
Retnavalli v. Ambalapadu Service Co-
operative Bank Ltd. [2005(3) KLT 320] (ii)
Nedupuzha Service Co-operative Bank
Ltd. v. Rugmini [2011(3) KLT 134(DB)]
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(iii)
Mathew Korah v. Kaduthuruthy Urban
Co-operative Bank [2013(4) KLT 558] (iv)
The Travancore Cements Employees'
Co-operative Bank Ltd. v. Ramachandran Nair [2014(1) KLT 889(DB)] and (v)
Life Insurance Corporation of India v.
K.P.Varughese [ILR 2015(3) Kerala 420(DB)].
None of the above decisions dealt with the second proviso to Rule 59(iii) of the Rules substituted with effect from 2.11.2010 only and hence do not help to resolve the controversy in this bunch of cases. The second proviso to Rule 59(iii) of the Rules referable to the amount received out of any scheme implemented by a society shall be construed in the context explained above. The employee in other words is entitled to the higher amount if he has opted in terms of Section 4(5) of the Central Act even if a lesser
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amount is due under Section 4(2) thereof. The decision in Nedupuzha's case (supra) to the extent that excess amount if any received by the employer under the policy would inure to the employee is affirmed. The said decision does not lay down the proposition that the entitlement of the employee is confined to the amount received under the policy even if it falls short of the statutory limit. Circular No.5/2016 and similar circulars issued by the Registrar of Co-operative Societies stem out of a misconception of the statutory provisions and are quashed to this extent. The reference is answered accordingly and the writ petitions shall be posted before the single Judge as per roster for disposal dependent on individual facts. Sd/V. CHITAMBARESH, JUDGE Sd/SHAJI P. CHALY, JUDGE
Sha/310817
Sd/SATHISH NINAN, JUDGE
