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Prologue

A workman plays a vital role in an industry. While he is a key element for


the growth and development of the ‘industry’ by way of his services
rendered through manual, unskilled, skilled, technical, operational, clerical
or supervisory work for hire or reward, the later viz., ‘industry’ provides
the base by means of doing business, trade, undertaking, manufacture or
calling of employers including service, employment, handicraft, or
industrial operation or a vocation of the ‘workman’. While the former
performs as a resource pool that runs the functionaries of the later, the later
employs the former to smoothly accomplish its endeavor by making the
most out of the human factor.

However, in most cases there arises conflict of interest between both i.e.,
the workman and the industry. This fundamentally happens due to
contradictory roles played by both; individuals and institutions i.e.,
‘industry’. Although a number of issues may be involved to cause a
conflict, but factors like work culture, natural environment, corporate
governance including management , HR issues, labour union politics,
ethics in workplace, nonconductive company policies, exploitation,
financial status of the industry, etc., are predominant causes that often
roots a conflict between both.

Nevertheless, it is often found that in majority of the cases a conflict arise


due to wrong policies of the employers, the management and improper
handling of the Human Resource System by the forerunners of the

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industry. Sometimes, even greed of the industry owners become the prime
cause. In such a case the real prey is the ‘workman’.

Basically a ‘workman’ is completely dependent upon the industry and he


looks toward it during adversity. He is a part of the workforce employed by
the industry. He merely knows how to render his services towards the
growth and smooth running of the industry. However, the affluent section
including the managers and the owners predominantly attempts to exploit
his workmanship.

Albeit, the legal system has definitive Laws and Acts passed like- the
Labour Act, Workman’s Compensation Act, Workman’s Compensation
Rules, the Industrial Employment Act, the Minimum Wages Act, Payment
of Bonus Act, etc, in most of the cases the employer evade these
regulations for their vested interest by way of existing loopholes and
ignorance of the ‘workman’. These are unethical practices by the corporate
governance that runs the industry.

Other unethical practices like bad politics between the


management/employer and the union wherein a workman is made a
scapegoat to gratify a vested interest of the industry must be abolished
totally from the system. For example, dismissal of an employee from
service for misconducts even though the past record of the employee being
clean is a case of such victimization.
An industry with a good management system following excellent work
ethics will definitely handle this case as a HR issue through its HRD.
Dismissal of such an employee may be prevented with proper counseling.

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In terms of corporate fraud that has been taking place from time to time
where infringement of morality and ethical conduct leads to a closure of a
company, say for example Satyam Computers, the victim in which case is
both the industry and the workman, a proper intervention by the legal
system can revive or compensate its workforce/workmen for the wrong
doing of its possessor. However, such issues are quite complex and are
beyond the discussion of this paper.

Further, industries with inappropriate management which deliberately


attempts to exploit its workmen eventually end up with disputes. A dispute
with a workman occurs only when the there is a breach of law. And the law
is to be followed by both the employee as well as the employer. In this case
the workman and the industry.

Since law is not unjust, unjust practices by the industry towards its
workman must be considered unlawful. All case studies on Industrial
Disputes point its fingers towards the fact that majority of cases on
industrial disputes ends up where industry is found to be at fault.

Thus, whenever a workman is victimized for his ‘blood and sweat’ the
Industry must compensate for all his losses. Be it the management, the
employer or the industry,
Practitioners of such unlawful and unethical activities must be penalized.
His blood has to be born by industry.

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The Industrial Disputes Act, 1947
DEFINITIONS :

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In this Act, unless there is anything repugnant in the subject or context, -
(a) "appropriate Government" means - (i) in relation to any industrial
disputes concerning any industry carried on by or under the authority
of the Central Government or by a railway company or concerning
any such controlled industry as may be specified in this behalf by the
Central Government or in relation to an industrial dispute concerning
Dock Labour Board established under section 5-A of the Dock
Workers (Regulation of Employment) Act, 1948 (9 of 1948), or the
Industrial Finance Corporation of India Limited formed and registered
under the Companies Act, 1956 (1 of 1956), or the Employees' State
Insurance Corporation established under section 3 of the Employees'
State Insurance Act, 1948 (34 of 1948), or the Board of Trustees
constituted under section 3-A of the Coal Mines Provident Fund and
Miscellaneous Provisions Act, 1948 (46 of 1948), or the Central
Board of Trustees and the State Boards of Trustees constituted under
section 5-A and section 5-B, respectively, of the Employees'
Provident Fund and Miscellaneous Provisions Act, 1952 (19 of 1952),
or the Life Insurance Corporation Act, 1956 (31 of 1956), or the Oil
and Natural Gas Corporation Limited registered under the Companies
Act, 1956 (1 of 1956), or the Deposit Insurance and Credit Insurance
and Credit Guarantee Corporation established under section 3 of the
Deposit Insurance and Credit Guarantee Corporation Act, 1961 (47 of
1961), or the Central Warehousing Corporation established under
section 3 of the Warehousing Corporations Act, 196 (58 of 1962), or
the Unit Trust of India established under section 3 of the Unit Trust of
India Act, 1963 (52 of 1963), or the Food Corporation of India
established under section 3, or a Board of Management established for
two or more contiguous States under section 16 of the Food
Corporations Act, 1964 (37 of 1964), or the Airports Authority of
India constituted under section 3 of the Airports Authority of India
Act, 1994 (55 of 1994), or a Regional Rural Bank established under
section 3 of the Regional Rural Banks Act, 1976 (21 of 1976), or the
Export Credit and Guarantee Corporation Limited or the Industrial
Reconstruction Corporation of India Limited, or the National Housing
Bank established under section 3 of the National Housing Bank Act,
1987 (53 of 1987) or the Banking Service Commission established
under section 3 of the Banking Service Commission Act, 1975, or an
air transport service, or a banking or an insurance company, a mine,
an oil-field, a Cantonment Board or a major port, the Central
Government; and

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(ii) in relation to any other industrial dispute, the State Government;

(aa) "arbitrator" includes an umpire;

(aaa) "average pay" means the average of the wages payable to a workman
- (i) in the case of monthly paid workman, in the three complete
calendar months,

(ii) in the case of weekly paid workman, in the four complete weeks,

(iii) in the case of daily paid workman, in the twelve full working days,
preceding the date on which the average pay becomes payable if the
workman had worked for three complete calendar months or four
complete weeks or twelve full working days, as the case may be, and
where such calculation cannot be made, the average pay shall be
calculated as the average of the wages payable to a workman during
the period he actually worked;

(b) "award" means an interim or a final determination of any industrial


dispute or of any question relating thereto by any Labour Court,
Industrial Tribunal or National Industrial Tribunal and includes an
arbitration award made under section 10A;

(bb) "banking company" means a banking company as defined in section 5


of the Banking Companies Act, 1949 (10 of 1949), having branches
or other establishments in more than one State, and includes the
Export-Import Bank of India, the Industrial Reconstruction Bank of
India; the Industrial Development Bank of India, the Small Industries
Development Bank of India established under section 3 of the Small
Industries Development Bank of India Act, 1989 (39 of 1989) the
Reserve Bank of India, the State Bank of India, a corresponding new
bank constituted under section 3 of the Banking Companies
(Acquisition and Transfer of Undertakings) Act, 1969, a
corresponding new bank constituted under section 3 of the Banking
Companies (Acquisition and Transfer of Undertakings) Act, 1970, a
corresponding new bank constituted under section 3 of the Banking
Companies (Acquisition and Transfer of Undertakings) Act, 1980,
and any subsidiary bank, as defined in the State Bank of India
(Subsidiary Banks) Act, 1959 (38 of 1959);

(c) "Board" means a Board of Conciliation constituted under this Act;

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(cc) "closure" means the permanent closing down of a place of
employment or part thereof;

(d) "conciliation officer" means a conciliation officer appointed under this


Act;

(e) "conciliation proceeding" means any proceeding held by a conciliation


officer or Board under this Act;

(ee) "controlled industry" means any industry the control of which by the
Union has been declared by any Central Act to be expedient in the
public interest;

(f) "Court" means a Court of Inquiry constituted under this Act;

(g) "employer" means - (i) in relation to an industry carried on by or under


the authority of any department of the Central Government or a State
Government, the authority prescribed in this behalf, or where no
authority is prescribed, the head of the department;

(ii) in relation to an industry carried on by or on behalf of a local authority,


the chief executive officer of that authority;

(gg) 'executive', in relation to a trade union, means the body by whatever


name called, to which the management of the affairs of the trade
union is entrusted;

(h) (i) a person shall be deemed to be "independent" for the purpose of his
appointment as the chairman or other member of a Board, Court or
Tribunal, if he is unconnected with the industrial dispute referred to
such Board, Court or Tribunal or with any industry directly affected
by such dispute :

Provided that no person shall cease to be independent by reason only of the


fact that he is a shareholder of an incorporated company which is
connected with, or likely to be affected by, such industrial dispute; but
in such a case, he shall disclose to the appropriate Government the
nature and extent of the shares held by him in such company;

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(j) "industry" means any systematic activity carried on by co-operation
between an employer and his workmen (whether such workmen are
employed by such employer directly or by or through any agency,
including a contractor) for the production, supply or distribution of
goods or services with a view to satisfy human wants or wishes (not
being wants or wishes which are merely spiritual or religious in
nature), whether or not, - (i) any capital has been invested for the
purpose of carrying on such activity; or

(ii) such activity is carried on with a motive to make any gain or profit, and
includes - (a) any activity of the Dock Labour Board established
under section 5A of the Dock Workers (Regulation of Employment)
Act, 1948 (9 of 1949);

(b) any activity relating to the promotion of sales or business or both


carried on by an establishment, but does not include - (1) any
agricultural operation except where such agricultural operation is
carried on in an integrated manner with any other activity (being any
such activity as is referred to in the foregoing provisions of this
clause) and such other activity is the predominant one.

Explanation : For the purposes of this sub-clause, "agricultural operation"


does not include any activity carried on in a plantation as defined in
clause (f) of section 2 of the Plantations Labour Act, 1951 (69 of
1951); or

(2) hospitals or dispensaries; or

(3) educational, scientific, research or training institutions; or

(4) institutions owned or managed by organizations wholly or substantially


engaged in any charitable, social or philanthropic service; or

(5) khadi or village industries; or

(6) any activity of the Government relatable to the sovereign functions of


the Government including all the activities carried on by the
departments of the Central Government dealing with defence
research, atomic energy and space; or

(7) any domestic service; or

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(8) any activity, being a profession practised by an individual or body of
individuals, if the number of persons employed by the individuals or
body of individuals in relation to such profession is less than ten; or

(9) any activity, being an activity carried on by a co-operative society or a


club or any other like body of individuals, if the number of persons
employed by the co-operative society, club or other like body of
individuals in relation to such activity is less than ten;

(k) "industrial dispute" means any dispute or difference between employers


and employers, or between employers and workmen, or between
workmen and workmen, which is connected with the employment or
non-employment or the terms of employment or with the conditions
of labour, of any person;

(ka) "industrial establishment or undertaking" means an establishment or


undertaking in which any industry is carried on :

Provided that where several activities are carried on in an establishment or


undertaking and only one or some of such activities is or are an
industry or industries, then, - (a) if any unit of such establishment or
undertaking carrying on any activity, being an industry, is severable
from the other unit or units of such establishment or undertaking, such
unit shall be deemed to be a separate industrial establishment or
undertaking;

(b) if the predominant activity or each of the predominant activities carried


on in such establishment or undertaking or any unit thereof is an
industry and the other activity or each of the other activities carried on
in such establishment or undertaking or unit thereof is not severable
from and is, for the purpose of carrying on, or aiding the carrying on
of, such predominant activity or activities, the entire establishment or
undertaking or, as the case may be, unit thereof shall be deemed to be
an industrial establishment or undertaking;

(kk) "insurance company" means an insurance company as defined in


section 2 of the Insurance Act, 1938 (4 of 1938), having branches or
other establishments in more than one State;

(kka) "khadi" has the meaning assigned to it in clause (d) of section 2 of


the Khadi and Village Industries Commission Act, 1956 (61 of 1956);

(kkb) "Labour Court" means a Labour Court constituted under section 7;


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(kkk) "lay-off" (with its grammatical variations and cognate expressions)
means the failure, refusal or inability of an employer on account of
shortage of coal, power or raw materials or the accumulation of stocks
or the break-down of machinery or natural calamity or for any other
connected reason to give employment to a workman whose name is
borne on the muster-rolls of his industrial establishment and who has
not been retrenched;

Explanation : Every workman whose name is borne on the muster-rolls of


the industrial establishment and who presents himself for work at the
establishment at the time appointed for the purpose during normal
working hours on any day and is not given employment by the
employer within two hours of his so presenting himself shall be
deemed to have been laid off for that day within the meaning of this
clause :

Provided that if the workman, instead of being given employment at the


commencement of any shift for any day is asked to present himself
for the purpose during the second half of the shift for the day and is
given employment, then, he shall be deemed to have been laid off
only for one half of that day :

Provided further that if he is not given any such employment even after so
presenting himself, he shall not be deemed to have been laid off for
the second half of the shift for the day and shall be entitled to full
basic wages and dearness allowance for that part of the day;

(l) "lock-out" means the temporary closing of a place of employment or the


suspension of work, or the refusal by an employer to continue to
employ any number of persons employed by him;

(la) "major-port" means a major port as defined in clause (8) of section 3 of


the Indian Ports Act, 1908 (15 of 1908);

(lb) "mine" means a mine as defined in clause (j) of sub-section (1) of


section 2 of the Mines Act, 1952 (35 of 1952);

(ll) "National Tribunal" means a National Industrial Tribunal constituted


under section 7B;

(lll) "office bearer", in relation to a trade union, includes any member of


the executive thereof, but does not include an auditor;

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(m) "prescribed" means prescribed by rules made under this Act;

(n) "public utility service" means - (i) any railway service or any transport
service for the carriage of passengers or goods by air;

(ia) any service in, or in connection with the working of, any major port or
dock;

(ii) any section of an industrial establishment, on the working of which the


safety of the establishment or the workmen employed therein
depends;

(iii) any postal, telegraph or telephone service;

(iv) any industry which supplies power, light or water to the public;

(v) any system of public conservancy or sanitation;

(vi) any industry specified in the First Schedule which the appropriate
Government may, if satisfied that public emergency or public interest
so requires, by notification in the Official Gazette, declare to be a
public utility service for the purposes of this Act, for such period as
may be specified in the notification :

Provided that the period so specified shall not, in the first instance, exceed
six months but may, by a like notification, be extended from time to
time, by any period not exceeding six months, at any one time, if in
the opinion of the appropriate Government, public emergency or
public interest requires such extension;

(o) "railway company" means a railway company as defined in section 3 of


the Indian Railways Act, 1890 (9 of 1890);

(oo) "retrenchment" means the termination by the employer of the service


of a workman for any reason whatsoever, otherwise than as a
punishment inflicted by way of disciplinary action, but does not
include - (a) voluntary retirement of the workman; or

(b) retirement of the workman on reaching the age of superannuating if the


contract of employment between the employer and the workman
concerned contains a stipulation in that behalf; or

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(bb) termination of the service of the workman as a result of the non-
removal of the contract of employment between the employer and the
workman concerned on its expiry or of such contract being terminated
under a stipulation in that behalf contained therein; or

(c) termination of the service of a workman on the ground of continued ill-


health;

(p) "settlement" means a settlement arrived at in the course of conciliation


proceeding and includes a written agreement between the employer
and workmen arrived at otherwise than in the course of conciliation
proceeding where such agreement has been signed by the parties
thereto in such manner as may be prescribed and a copy thereof has
been sent to an officer authorised in this behalf by the appropriate
Government and the conciliation officer;

(q) "strike" means a cessation of work by a body of persons employed in


any industry acting in combination, or a concerted refusal, or a refusal
under a common understanding, of any number of persons who are or
have been so employed to continue to work or to accept employment;

(qq) "trade union" means a trade union registered under the Trade Unions
Act, 1926 (16 of 1926);

(r) "Tribunal" means an Industrial Tribunal constituted under section 7-A


and includes an Industrial Tribunal constituted before the 10th day of
March, 1957, under this Act;

(ra) "unfair labour practice" means any of the practices specified in the
Fifth Schedule;

(rb) "village industries" has the meaning assigned to it in clause (h) of


section 2 of the Khadi and Village Industries Commission Act, 1956
(61 of 1956);

(rr) "wages" means all remuneration capable of being expressed in terms of


money, which would, if the terms of employment, expressed or
implied, were fulfilled, be payable to a workman in respect of his
employment, or of work done in such employment, and includes - (i)
such allowances (including dearness allowance) as the workman is for
the time being entitled to;

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(ii) the value of any house accommodation, or of supply of light, water,
medical attendance or other amenity or of any service or of any
confessional supply of food grains or other articles;

(iii) any traveling concession;

(iv) any commission payable on the promotion of sales or business or both;


but does not include - (a) any bonus;

(b) any contribution paid or payable by the employer to any pension fund
or provident fund or for the benefit of the workman under any law for
the time being in force;

(c) any gratuity payable on the termination of his service;

(s) "workman" means any person (including an apprentice) employed in


any industry to do any manual, unskilled, skilled, technical,
operational, clerical or supervisory work for hire or reward, whether
the terms of employment be express or implied, and for the purposes
of any proceeding under this Act in relation to an industrial dispute,
includes any such person who has been dismissed, discharged or
retrenched in connection with, or as a consequence of, that dispute, or
whose dismissal, discharge or retrenchment has led to that dispute,
but does not include any such person - (i) who is subject to the Air
Force Act, 1950 (45 of 1950), or the Army Act, 1950 (46 of 1950), or
the Navy Act, 1957 (62 of 1957); or

(ii) who is employed in the police service or as an officer or other


employee of a prison; or

(iii) who is employed mainly in a managerial or administrative capacity; or

(iv) who, being employed in a supervisory capacity, draws wages


exceeding one thousand six hundred rupees per mensem or exercises,
either by the nature of the duties attached to the office or by reason of
the powers vested in him, functions mainly of a managerial nature.

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THE PAYMENT OF BONUS ACT, 1965

INTRODUCTION:
This is an Act intended to provide for payment of bonus to persons
employed in certain establishments and for matters connected therewith. It
came into force from September 25, 1965. It extends to whole of India. It
shall provide to: (a) every factory and (b) every other establishment in
which 20 or more persons are employed on any day during an accounting
year.

WHO IS ENTITLED TO BONUS?


Every employee of an establishment covered under the Act is entitled to
bonus from his employer in an accounting year provided he has worked in
that establishment for not less than 30 working days in the year on a salary
less than Rs. 3500 per month.

If an employee is prevented from working and subsequently reinstated in


service, employer’s statutory liability for bonus cannot be said to have

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been lost. Nor can the employer refuse for such bonus. [ONGC vs. Sham
Kumar Sahegal [1995] 1 LLJ].

There are however, certain disqualifications of an employee to claim bonus


in an accounting year. An employee who has been dismissed from service
for
(a) fraud; or
(b) riotous or violent behaviour while on the premises of the establishment;
or
(c) theft, misappropriation or sabotage of any property of the establishment
is not entitled for bonus.

An employee in the following cases is entitled to bonus:


 A temporary workman is entitled to bonus on the basis of total
number of days worked by him.
 An employee of a seasonal factory is entitled to proportionate
bonus and not the minimum bonus as prescribed under the
provisions of the Act.
 A part time employee as a sweeper engaged on a regular basis is
entitled to bonus.
 A retrenched employee is eligible to get bonus provided he has
worked for minimum qualified period.
 A probationer is an employee and as such is entitled to bonus.
 A dismissed employee reinstated with back wages is entitled to
bonus.
 A piece-rated worker is entitled to bonus.

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An employee in the following cases is not entitled to bonus:
 An apprentice is not entitled to bonus.
 An employee employed through contractors on building
operation is not entitled to bonus.
 An employee who is dismissed from service on the ground of
misconduct.

PAYMENT OF MINIMUM BONUS (SECTION 10) :


Subject to the provisions of this Act, every employer shall be bound to
pay to every employee in respect of every accounting year, minimum
bonus which shall be 8.33% of the salary or wage earned by the
employee during the accounting year or Rs. 100, whichever is higher,
whether or not the employer has any allocable surplus in the accounting
year. But if the employee has not completed 15 years of age at the
beginning of the accounting year he will be entitled to a minimum
bonus which shall be 8.33% of the salary or wage during the accounting
year Rs. 60, whichever is higher.

Even if the employer suffers losses during the accounting year he is


bound to pay minimum bonus as prescribed by section 10 [State vs.
Sardar Dalip Singh Majilhia,1979,Lab. I.C.(913)(All)].

PAYMENT OF MAXIMUM BONUS (SECTION 11) :


Where in respect of any accounting year referred to in Section 10, the
allocable surplus exceeds the amount of minimum bonus payable to the
employees under that section, the employer shall, in lieu of such
minimum bonus, be bound to pay to every employee in respect of that

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accounting year bonus which shall be an amount in proportion to the
salary or wage earned by the employee during the accounting year
subject to a maximum 20% of such salary or wage.

POWER OF EXEMPTION (SECTION 36) :


Though the Act creates liability on the part of employer to pay the
minimum bonus and confers a right to the workmen, as mentioned in
Section 10, the obligation and right is subject to exemption under
Section 36.
There are two stages in Section 36.
 The Government shall consider the financial position and other
relevant circumstances of an establishment or class of
establishment.
 It should be of the opinion that it would not be in the public
interest to apply all or any of the provisions of the Act.

THE EMPLOYEES’ PROVIDENT FUNDS AND


MISCELLANEOUS PROVISIONS ACT, 1952

INTRODUCTION:
The Employee’s Provident Funds and Miscellaneous Provisions Act, 1952
(hereinafter referred to as ‘the Act’) extends to the whole of India except
the State of Jammu & Kashmir. It seeks to provide for the institution of
provident funds, family pension funds and deposit linked insurance funds
for employees in factories and other establishments. The Act is at present
applicable to 173 industries and classes of establishments of Schedule I.

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Subject to the exceptions contained in Section 16, this Act applies to the
following entities, namely:
(a) every establishment which is a factory engaged in any industry
specified in Schedule I & in which 20 or more persons are employed ; and
(b) any other establishment which employs 20 or more persons or class of
such establishments which the Central Government may, by notification in
Official Gazette specify in the behalf.
However, the Central Government may, after giving not less than 2 months
notice of its intention to do so, apply the provisions of this Act to any
establishment with less than 20 persons in the employment.

EMPLOYEES' PROVIDENT FUNDS SCHEME:


1. The Central Government may by notification in the Official Gazette
frame a Scheme to be called the Employees' Provident Funds Scheme for
the establishment of provident funds under this Act for employees or for
any class of employees and specify the establishments or class of
establishments to which the said Scheme shall apply and there shall be
established as soon as may be after the framing of the Scheme a Fund in
accordance with the provision of this Act and the Scheme.

2. The Fund shall vest in and be administered by the Central Board


constituted under section 5A.

EMPLOYEES' PENSION SCHEME:


1. The Central Government may by notification in the Official Gazette

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frame a scheme to be called the Employees' Pension Scheme for the
purpose of providing for :
(a) superannuation pension retiring pension or permanent total disablement
pension to the employees of any establishment or class of establishments to
which this Act applies; and
(b) widow or widower's pension children pension of orphan pension
payable to the beneficiaries of such employees.

2. There shall be established as soon as may be framing of the Pension


Scheme a Pension Fund into which there shall be paid from time to time in
respect of every employee who is a member of the Pension Scheme :
(a) such sums from the employer's contribution under section 6 not
exceeding eight and one-third per cent of the basic wages dearness
allowance and retaining allowance if any of the concerned employees as
may specified in the Pension Scheme;
(b) such sums as are payable by the employers of exempted establishments
under sub-section (6) of section 17;
(c) the net assets of the Employees' Family Pension Fund as on the date of
the establishment of the Pension Fund;
(d) such sums as the Central Government may after due appropriation by
Parliament by law in this behalf specify.

3. On the establishment of the Pension Fund the Family Pension Scheme


(hereinafter referred to as the ceased scheme) shall cease to operate and all
assets of the ceased scheme shall vest in and shall stand transferred to and
all liabilities under the ceased scheme shall be enforceable against the
Pension Fund and the beneficiaries under the ceased scheme shall be

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entitled to draw the benefits not less than the benefits they were entitled to
under the ceased scheme from the Pension Fund.

4. The Pension Fund shall vest in and be administered by the Central Board
in such manner as may be specified in the Pension Scheme.

5. Subject to the provisions of this Act the Pension Scheme may provide
for all or any of the matters specified in Schedule III.

6. The Pension Scheme may provide that all or any of its provisions shall
take effect either prospectively or retrospectively on such date as may be
specified in that behalf in that Scheme.

7. A Pension Fund Scheme framed shall be laid as soon as may be after it


is made before each House of Parliament while it is in session for a total
period of thirty days which may be comprised in one session or in two or
more successive sessions and if before the expiry of the session
immediately following the session or the successive sessions aforesaid both
Houses agree in making any modification in the scheme or both Houses
agree that the scheme should not be made the scheme shall thereafter have
effect only in such modified form or be of no effect as the case may be; so
however that any such modification or annulment shall be without
prejudice to the validity of anything previously done under that scheme".

EMPLOYEES' DEPOSIT LINKED INSURANCE SCHEME:


1. The Central Government may by notification in the Official Gazette
frame a Scheme to be called the Employees' Deposit-linked Insurance

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Scheme for the purpose of providing life insurance benefits to the
employees of any establishment or class of establishments to which this
Act applies.

2. There shall be established as soon as may be after the framing of the


Insurance Scheme a Deposit-linked Insurance Fund into which shall be
paid by the employer from time to time in respect of every such employee
in relation to whom he is the employer such amount not being more than
one per cent of the aggregate of the basic wages dearness allowance and
retaining allowance (if any) for the time being payable in relation to such
employee as the Central Government may by notification in the Official
Gazette specify.

3. The employer shall pay into the Insurance Fund such further sums of
money not exceeding one-fourth of the contribution which he is required to
make under sub-section (2) as the Central Government may from time to
time determine to meet all the expenses in connection with administration
of the Insurance Scheme other than the expenses towards the cost of any
benefits provided by or under that Scheme.

4. The Insurance Fund shall vest in the Central Board and be administered
by it in such manner as may be specified in the Insurance Scheme.

5. The Insurance Scheme may provide for all or any of the matters
specified in Schedule IV.

6. The Insurance Scheme may provide that any of its provisions shall take

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effect either prospectively or retrospectively on such date as may be
specified in this behalf in that Scheme.

EMPLOYEES' PROVIDENT FUNDS APPELLATE TRIBUNAL:


1. The Central Government may by notification in the Official Gazette
constitute one or more Appellate Tribunals to be known as the Employees'
Provident Funds Appellate Tribunal to exercise the powers and discharge
the functions conferred on such Tribunal by this Act and every such
Tribunal shall have jurisdiction in respect of establishments situated in
such area as may be specified in the notification constituting the Tribunal.

2. A Tribunal shall consist of one person only to be appointed by the


Central Government.

3. A person shall not be qualified for appointment as the Presiding Officer


of a Tribunal (hereinafter referred to as the Presiding Officer) unless he is
or has been or is qualified to be a Judge of a High Court.

MODE OF RECOVERY OF MONEYS DUE FROM EMPLOYERS:


Any amount due :
(a) from the employer in relation to an establishment to which any Scheme
or the Insurance Scheme applies in respect of any contribution payable to
the Fund or as the case may be the Insurance Fund damages recoverable
under section 14B accumulations required to be transferred under sub-
section (2) of section 15 or under sub-section (5) of section 17 or any
charges payable by him under any other provision of this Act or of any
provision of the Scheme or the Insurance Scheme; or

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(b) from the employer in relation to an exempted establishment in respect
of any damages recoverable under section 14B or any charges payable by
him to the appropriate Government under any provision of this Act or
under any of the conditions specified under section 17 or in respect of the
contribution payable by him towards the Pension Scheme or the Insurance
Scheme under the said section 17 may if the amount is in arrears be
recovered in the manner specified in sections 8B to 8G.

POWER OF CENTRAL GOVERNMENT TO GIVE DIRECTIONS:


The Central Government may from time to time give such directions to the
Central Board as it may think fit for the efficient administration of this Act
and when any such direction is given the Central Board shall comply with
such direction.

POWER TO REMOVE DIFFICULTIES:


1. If any difficulty arises in giving effect to the provisions of this Act as
amended by the Employees' Provident Funds and Miscellaneous Provisions
(Amendment) Act 1988 the Central Government may by order published
of the Official Gazette make such provisions not inconsistent with the
provisions of this Act as appear to it to be necessary or expedient for the
removal of the difficulty.
Provided that no such order shall be made after the expiry of a period of
three year from the date on which the said Amendment Act receives the
assent of the President.
(2) Every order made under this section shall as soon as may be after it is
made be laid before each House of Parliament.

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THE PAYMENT OF GRATUITY ACT, 1972

INTRODUCTION:
The Payment of Gratuity Act, 1972 extends to the whole of India :
Provided that in so far as it relates to plantations or ports, it shall not
extend to the State of Jammu and Kashmir.
It shall apply to –
(a) every factory, mine, oilfield, plantation, port and railway company;
(b) every shop or establishment within the meaning of any law for the time
being in force in relation to shops and establishments in a State, in which
ten or more persons are employed, or were employed, on any day of the
preceding twelve months;
(c) such other establishments or class of establishments, in which ten or
more employees are employed, or were employed, on any day of the
preceding twelve months, as the Central Government may, by notification,
specify in this behalf.
A shop or establishment to which this Act has become applicable shall
continue to be governed by this Act notwithstanding that the number of
persons employed therein at any time after it has become so applicable
falls below ten.

CONTINUOUS SERVICE:
For the purposes of this Act, -
1. an employee shall be said to be in continuous service for a period if he
has, for that period, been in uninterrupted service, including service which
may be interrupted on account of sickness, accident, leave, absence from

2460
duty without leave (not being absence in respect of which an order treating
the absence as break in service has been passed in accordance with the
standing order, rules or regulations governing the employees of the
establishment), lay off, strike or a lock-out or cessation of work not due to
any fault of the employee, whether such uninterrupted or interrupted
service was rendered before or after the commencement of this Act.

2. where an employee (not being an employee employed in a seasonal


establishment) is not in continuous service, for any period of one year or
six months, he shall be deemed to be in continuous service under the
employer - (a) for the said period of one year, if the employee during the
period of twelve calendar months preceding the date with reference to
which calculation is to be made, has actually worked under the employer
for not less than - (i) one hundred and ninety days, in the case of an
employee employed below the ground in a mine or in an establishment
which works for less than six days in a week; and (ii) two hundred and
forty days, in any other case;
(b) for the said period of six months, if the employee during the period of
six calendar months preceding the date with reference to which the
calculation is to be made, has actually worked under the employer for not
less than - (i) ninety-five days, in the case of an employee employed below
the ground in a mine or in an establishment which works for less than six
days in a week; and
(ii) one hundred and twenty days, in any other case;
Explanation : For the purpose of clause (2), the number of days on which
an employee has actually worked under an employer shall include the days
on which - (i) he has been laid-off under an agreement or as permitted by

2560
standing orders made under the Industrial Employment (Standing Order's)
Act, 1946 (20 of 1946), or under the Industrial Disputes Act, 1947 (14 of
1947), or under any other law applicable to the establishment;
(ii) he has been on leave with full wages, earned in the previous year;
(iii) he has been absent due to temporary disablement caused by accident
arising out of and in the course of his employment; and
(iv) in the case of a female, she has been on maternity leave; so, however,
that the total period of such maternity leave does not exceed twelve weeks.

3. where an employee employed in a seasonal establishment, is not in


continuous service within the meaning of clause (1), for any period of one
year or six months, he shall be deemed to be in continuous service under
the employer for such period if he has actually worked for not less than
seventy-five per cent of the number of days on which the establishment
was in operation during such period.

CONTROLLING AUTHORITY:
The appropriate Government may, by notification, appoint any officer to be
a controlling authority, who shall be responsible for the administration of
this Act and different controlling authorities may be appointed for different
areas.

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

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(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,

2760
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, willful 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

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(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.

POWER TO EXEMPT :
1. The appropriate Government may, by notification, and subject to such
conditions as may be specified in the notification, exempt any
establishment, factory, mine, oilfield, plantation, port, railway company or
shop to which this Act applies from the operation of the provisions of this
Act if, in the opinion of the appropriate Government, the employees in
such establishment, factory, mine, oilfield, plantation, port, railway
company or shop are in receipt of gratuity or pensionary benefits not less
favourable than the benefits conferred under this Act.

2. The appropriate Government may, by notification and subject to such


conditions as may be specified in the notification, exempt any employee or
class of employees employed in any establishment, factory, mine, oilfield,
plantation, port, railway company or shop to which this Act applies from
the operation of the provisions of this Act, if, in the opinion of the
appropriate Government, such employee or class of employees are in
receipt of gratuity or pensionary benefits not less favourable than the
benefits conferred under this Act.

3. A notification issued under sub-section (1) or sub-section (2) may be


issued retrospectively a date not earlier than the date of commencement of
this Act, but no such notification shall be issued so as to prejudicially
affect the interests of any person.

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RECOVERY OF GRATUITY:
If the amount of gratuity payable under this Act is not paid by the
employer, within the prescribed time, to the person entitled thereto, the
controlling authority shall, on an application made to it in this behalf by the
aggrieved person, issue a certificate for that amount to the Collector, who
shall recover the same, together with compound interest thereon at such
rate as the Central Government may, by notification, specify, from the date
of expiry of the prescribed time, as arrears of land revenue and pay the
same to the person entitled thereto.
Provided that the controlling authority shall, before issuing a certificate
under this section, give the employer a reasonable opportunity of showing
cause against the issue of such certificate.
Provided further that the amount of interest payable under this section
shall, in no case exceed the amount of gratuity payable under this Act.

PENALTIES:
1. Whoever, for the purpose of avoiding any payment to be made by
himself under this Act or of enabling any other person to avoid such
payment, knowingly makes or causes to be made any false statement or
false representation shall be punishable with imprisonment for a term
which may extend to six months, or with fine which may extend to ten
thousand rupees or with both.

2. An employer who contravenes, or makes default in complying with, any


of the provisions of this Act or any rule or order made thereunder shall be
punishable with imprisonment for a term which shall not be less than three

3060
months but which may extend to one year, or with fine which shall not be
less than ten thousand rupees but which may extend to twenty thousand
rupees, or with both.
Provided that where the offence relates to non-payment of any gratuity
payable under this Act, the employer shall be punishable with
imprisonment for a term which shall not be less than six months but which
may extend to two years unless the court trying the offence, for reasons to
be recorded by it in writing, is of opinion that a lesser term of
imprisonment or the imposition of a fine would meet the ends of justice.

PROTECTION OF ACTION TAKEN IN GOOD FAITH:


No suit or other legal proceeding shall lie against the controlling authority
or any other person in respect of anything which is in good faith done or
intended to be done under this Act or any rule or order made thereunder.

PROTECTION OF GRATUITY:
No gratuity payable under this Act and no gratuity payable to an employee
employed in any establishment, factory, mine, oilfield, plantation, port,
railway company or shop exempted under section 5 shall be liable to
attachment in execution of any decree or order of any civil, revenue or
criminal court.

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.

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POWER TO MAKE RULES:
1. The appropriate Government may, by notification make rules for the
purpose of carrying out the provisions of this Act.

2. Every rule made by the Central Government under this Act shall be laid,
as soon as may be after it is made, before each House of Parliament while
it is in session, for a total period of thirty days which may be comprised in
one session or in two or more successive sessions, and if, before the expiry
of the session immediately following the session or the successive sessions
aforesaid, both Houses agree in making any modification in the rule or
both Houses agree that the rule should not be made, the rule shall,
thereafter, have effect only in such modified form or be of no effect as the
case may be; so, however, that any such modification or annulment shall
be without prejudice to the validity of anything previously done under that
rule.

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CASE LAW INDEX
• Guru Jambheshwar University ... vs Dharam Pal on 17 January,
2007
CASE NO.: Appeal (civil) 252 of 2007
• Management of India Hume Pipe Co. Ltd. v/s K. Palaniswami
and Anr. on 14/12/1966

3360
Case Study-1

Guru Jambheshwar University ... vs Dharam Pal on 17 January, 2007


CASE NO.: Appeal (civil) 252 of 2007
JUDGE: G. P. MATHUR, J.
PETITIONER: Guru Jambheshwar University through Registrar
RESPONDENT: Dharam Pal
DATE OF JUDGMENT: 17/01/2007
BENCH: G.P. Mathur & Dalveer Bhandari
JUDGMENT: J U D G M E N T Arising out of Special Leave Petition
(Civil) No.15566 of 2005.

1. Leave granted.

2. This appeal, by special leave, has been preferred against the


judgment and order dated 21.3.2005 of a Division Bench of High
Court of Punjab and Haryana, whereby the writ petition filed by the
appellant challenging the award dated 9.11.2004 of the Industrial
Tribunal-cum-Labour Court, Hisar, was summarily dismissed.

3. The respondent Dharam Pal issued a notice dated 20.1.199 8 under


Section 2A of the Industrial Disputes Act, 1947 (hereinafter referred

3460
to as 'the Act') alleging that he was employed as an unskilled
workman by the appellant Guru Jambheshwar University, Hisar, on
2.10.1995, but his services were illegally terminated on 15.1.1998.
As the conciliation proceedings could not fructify, the Government
of Haryana referred the dispute under Section 10(1) of the Act for
adjudication by the Industrial Tribunal-cum-Labour Court, Hisar
(hereinafter referred to as 'the Labour Court") regarding the validity
of the termination of services of the respondent Dharam Pal and the
relief which he was entitled to get in case the termination order was
found to be illegal.

4. The respondent in his claim statement pleaded, inter alia, that he was
appointed as unskilled workman on the post of Mali (gardener) in
the University by a verbal order dated 2.10.1995; that he was
removed from service on 2.7.1997 but subsequently he was taken
back on duty on 15.10.1997; that he was illegally removed from the
service of the University on 15.1.1998; that the University was
paying wages of Rs.1638/- per month before his removal from
service; that the University had regular work and persons junior to
him had been retained in service and had been regularized; that the
University was forcing the workman to work on contract basis
despite the fact that there is work of regular nature; that the
University was adopting unfair labour practice and that his
retrenchment was illegal as neither any notice was given nor any
compensation was paid to him at the time of his retrenchment.

3560
5. The Registrar of the University filed a reply on the grounds, inter
alia, that the respondent was engaged as Mali on daily wages on
2.12.1995 and not on 2.10.1995, as claimed by him; that he was
appointed for doing specific job of Mali in the Farming/Horticulture
Wing of the University; that the Government of Haryana on the basis
of the orders passed in CWP No.4522 of 1994 (Kulbhushan v.State
of Haryana) by the High Court had issued instructions to the
University vide letter No.12/5-96/Ad.I(5) dated 17.1.1996 that no
appointment on daily wage basis should be made and all
appointments should be made on contract basis; that in accordance
with the instructions all existing employees in the University who
were working on daily wage basis were put on contract basis; that
the respondent and some other employees engaged on contract basis
had been appointed without following any procedure; that
meanwhile the University advertised the post of
Mali for making regular appointments in order to comply with the
requirements of Articles 14 and 16 of the Constitution; that the
respondent also applied for the said post of Mali and appeared in
interview but he was not selected yet he was allowed to continue;
that consequent upon the closure of the farming operations in the
University and cessation of other seasonal work, the respondent was
given one month's notice vide University letter no.485-500 dated
15.12.1997; that on completion of one month, the services of the
respondent were retrenched vide order dated 15.1.1998; that a
cheque bearing no.416869 dated 15.1.1998 was also given to the
respondent in compliance of Section 25F(b) of the Act as
retrenchment compensation; that as there was some work in the

3660
University all the employees who were retrenched earlier were
called but the respondent did not turn up for duty though 14 other
employees reported for duty and were engaged and a letter in this
regard was sent to the Labour and Conciliation Officer, Hisar on
21.5.1998. It was specifically pleaded that the services of the
respondent were retrenched after duly complying with the provisions
of Section 25F of the Act and that in the regular selection held for
the post of Mali the respondent was not selected by the selection
committee.

6. The parties adduced oral and documentary evidence in support of


their case before the Labour Court. The Labour Court held that the
instructions issued by the Government showed that the monthly
wages of unskilled Mali were Rs.1642/-. The respondent had been
appointed on 2.12.1995 and his services were terminated on
15.1.1998 and thus he had completed two years and one month of
service on the date when he was retrenched from service. He was
thus required to be paid 15 days' average pay for completion of the
first year of service and 15 days' average pay for completion of
second year of service as retrenchment compensation. It was further
held that in order to calculate the retrenchment compensation, the
legal requirement was to divide average monthly wage by 26 and not
by 30, as a worker ordinarily gets four weekly holidays and has to
work only on 26 days in a month. For holding so, the Labour Court
relied upon some decisions of the High Courts and also a decision of
this Court in Jeevanlal (1929) Ltd. V. Appellate Authority under the
Payment of Gratuity Act and Ors. (1984) Lab IC 1458. After holding

3760
so, it was held that one day's average pay of the respondent would be
Rs.63.15 (Rs.1642/26) and thus the compliance of Section 25F(b)
required payment of Rs.63.15x15x 2 = Rs.1,894.50. It was
accordingly held that the retrenchment compensation of Rs.1642/-
paid by the University to the respondent fell short of the amount
which was required to be paid under law and, therefore, there was
non- compliance of Section 25F(b) of the Act which rendered the
retrenchment of the respondent as illegal. It was further held that the
University had not produced any evidence to show that the
respondent had been gainfully employed after termination of his
service, but looking to the fact that he was engaged in a job which
did not require any qualification, it could not be held that he
remained totally out of job during the intervening period and,
therefore, he was entitled to 50% back wages. The Labour Court,
accordingly, gave an Award directing that the respondent be
reinstated with continuity in service and all other consequent service
benefits along with 50% back wages from the date of issuance of
demand notice dated 21.1.1998 till publication of the Award and full
wages thereafter till his reinstatement.

7. The question which requires consideration is whether the Labour


Court was correct in holding that one day's average pay of the
respondent should becalculated by dividing his monthly salary of
Rs.1642/- by 26 and the quotient so arrived at should be multiplied
by 30 (15 x 2) as he had worked for two years and one month.

3860
8. Sections 2(aaa) and 25F of the Industrial Disputes Act, 1947 read as
under:-
2(aaa) "average pay" means the average of the wages payable to a
workman--

(i) in the case of monthly paid workman, in the three complete


calendar months,

ii) in the case of weekly paid workman, in the four complete


weeks,
iii) in the case of daily paid workman, in the twelve full working
days, preceding the date on which the average pay becomes
payable if the workman had worked for three complete
calendar months or four complete weeks or twelve full
working days, as the case may be, and where such calculation
cannot be made, the average pay shall be calculated as the
average of the wages payable to a workman during the
period he actually worked. 25F. Conditions precedent to
retrenchment of workmen.-

No workman employed in any industry who has been in continuous service


for not less than one year under an employer shall be retrenched by that
employer until--

(a) the workman has been given one month's notice in writing
indicating the reasons for retrenchment and the period of
notice has expired, or the workman

3960
has been paid in lieu of such notice, wages for the period of
the notice:

(b) the workman has been paid, at the time of retrenchment,


compensation which
shall be equivalent to fifteen days' average pay for every
completed year of
continuous service or any part thereof in excess of six months;
and

(c) notice in the prescribed manner is served on the appropriate


Government or
such authority as may be specified by the appropriate
Government by notification
in the Official Gazette.

Sub-section (b) of Section 25F requires payment of retrenchment


compensation to a workman which shall be equivalent to 15 days' average
pay for every completed year of continuous service or any part thereof in
excess of six months. Average pay has been defined in Section 2(aaa) of
the Act and, therefore, average pay has to be determined strictly in
accordance with the aforesaid provision and not on the basis of some
hypothetical calculation. Section 2(aaa) contemplates four different kinds
of wage period for payment of wages. Clause (i) speaks of monthly paid
workman and here the average wage has to be calculated by arriving at the
average or mean of three complete calendar months. Clause (ii) refers to
weekly paid workman where the average pay would be the average or

4060
mean of four complete weeks. Clause (iii) deals with daily wage workman
and in this case the average pay would be the average or mean of wages in
twelve full working days. The fourth category would be a case where it is
not covered by any of the sub-clauses (i), (ii) or (iii) and in this case the
average pay shall be calculated as the average of the wages payable to a
workman during the period he had actually worked.

9. The language used in Section 2(aaa) is absolutely plain and clear and
there is not the slightest ambiguity in the same. It is well settled
principle that the words of a Statute are first understood in their
natural, ordinary or popular sense and phrases and sentences are
construed according to their grammatical meaning, unless that leads
to some absurdity or there is something in the context or in the
object of the statute to suggest to the contrary. The true way is to
take the words as the legislature have given them, and to take the
meaning which the words given naturally imply, unless where the
construction of those words is, either by the preamble or by the
context of the words in question, controlled or altered. As is often
said the golden rule is that the words of a statute must prima facie be
given their ordinary meaning and natural and ordinary meaning of
the words should not be departed from unless it can be shown that
the legal context in which the words are used requires a different
meaning. (See Principles of Statutory Interpretation by Justice G.P.
Singh Ninth Edition2004 pg.78-79).

4160
10. In the demand notice served by the respondent upon the University
under Section 2-A of the Act on 20.1.1998, it was stated "that the
University was paying him Rs.1638/- per month before removal."
Again in para 2 of the claim statement which was filed by the
respondent before the Labour Court, wherein he described himself as
petitioner, it was stated "that the University was paying the
petitioner Rs.1.638/- per month before the removal." In the reply, it
is also the specific case of the University that the respondent was
being paid on monthly basis at the rate of Rs.1642/- per month.
Therefore, there is no dispute that the respondent was being paid
wages on monthly basis though there is slight difference in the actual
amount which was being paid to him. The Labour Court has
recorded a finding that a cheque for Rs.1642/- was given by the
University to the respondent as retrenchment compensation. Since
the respondent was being paid wages on monthly basis, his average
pay has to be calculated in accordance with the formula given in
clause (i) of Section 2(aaa) of the Act which would mean the sum
total of wages paid to him in three complete calendar months
immediately preceding his retrenchment and dividing the said
amount by three.

The respondent was being paid wages amounting to Rs.1642/- per


month in immediately three preceding months before his
retrenchment. Therefore, the "average pay" in accordance with
Section 2(aaa)(i) would come to Rs.1642/-. The respondent had
worked for two years and one month and, therefore, he was entitled
to thirty (15 x 2) days of average pay by way of trenchment

4260
compensation in order to comply with requirement of Section 25F(b)
of the Act. The "average pay" of the respondent being Rs.1642/- per
month and he being entitled to 30 days' average pay by way of
retrenchment compensation, he was required to be paid Rs.1642/- as
retrenchment compensation. The University gave him a cheque for
Rs.1642/- at the time of his retrenchment and, therefore, there was
full compliance of Section 25F(b) of the Act.

11. The Labour Court has basically relied upon a decision of this Court
rendered in Jeevanlal (1929) Ltd. V. Appellate Authority under the
Payment of Gratuity Act and Ors. (1984) Lab IC 1458 for coming to
the conclusion that the respondent's average pay has to be calculated
on per day basis by dividing the monthly salary drawn by him by 26
and the quotient so arrived at should be multiplied by 30 in order to
determine the retrenchment compensation under Section 25F(b) of
the Act. It, therefore, becomes necessary to consider the aforesaid
decision in detail. The issue involved in the said case related to
payment of gratuity. Section 2(s) and sub-sections (1), (2) and (3) of
Section 4 of Payment of Gratuity Act at the relevant time read as
under :- "2(s) "wages" means all emoluments which are earned by an
employee while on duty or on leave in accordance with the terms
and conditions of his employment and which are paid or are payable
to him in cash and includes dearness allowance but does not include
any bonus, commission, house rent allowance, overtime wages and
any other allowances."

4360
"4(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 of disease.

Provided that the completion of five years shall not be necessary where
thetermination 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.

Explanation - For the purpose 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 :

4460
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."

While interpreting the aforesaid provisions, the Court held as under in para
10 of the reports :

10. In dealing with interpretation of sub-sections (2) and (3) of Section 4


of the Act, we must keep in view the scheme of the Act. Sub-section
(1) of Section 4 of the Act incorporates the concept of gratuity being
a reward for long, continuous and meritorious service. Sub-section
(2) of Section 4 of the Act provides for payment of gratuity at the
rate of "fifteen days' wages" based on the rate of wages last drawn
by the employee concerned for every completed year of service. The
legislative intent is obvious. Had the legislature stopped with the
words "fifteen days' wages", occurring in sub-section (2) of Section
4 of the Act, there was something to be said for the submission

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advanced by the learned counsel for the appellants based upon the
decision of the learned single Judge of the Andhra Pradesh High
Court in Associated Cement's case (1976) Lab IC 926) which was
later approved by a Division Bench of the Court in Swamy's case
(1978 Lab IC 1285). But the legislature did not stop with the words
"fifteen days' wages" in sub-section (2) of Section 4 of this Act. The
words "fifteen days' wages" are preceded by the words "at the rate
of" and qualified by the words "based on the rate of wages last
drawn" by the employee concerned. The emphasis is not on what an
employee would have earned in the course of fifteen days during the
month when his employment was last terminated, but on the rate of
fifteen days' wages for every completed year of service based on the
rate of wages last drawn by the employee concerned. The word 'rate'
appears twice in sub-section (2) of Section 4 and it necessarily
nvolves the concept of actual working days. In Digvijay Woollen
Mills' case (AIR 1980 SC 1944) the Court rightly observed that
although a month is understood to consist of 30 days, gratuity
payable under the Act treating the monthly wages as wages for 26
working days is not new or unknown."

(emphasis supplied)

Paragraph 12 of the reports is also relevant and the same is being


reproduced
below :

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12. It is not correct to say that the decision in Shri Digvijay Woollen
Mills' case (AIR 1980 SC 1944) does not lay down any principle.
Gupta, J. speaking for the Court set out the following passage from
the judgment of the Gujarat High Court in Shri Digvijay Woollen
Mills' case (para 4) : "The employee is to be paid gratuity for every
completed year of service and the only yardstick provided is that the
rate of wages last drawn by an employee concerned shall be utilized
and on that basis at the rate of fifteen days' wages for each year of
service, the gratuity would be computed. In any factory it is well
known that an employee never works and could never be permitted
to work for all the 30 days of the month. He gets 52 Sundays in a
year as paid holidays and, therefore, the basic wages and dearness
allowance are always fixed by taking into consideration this
economic reality.

A worker gets full month's wages not by remaining on duty for all the 30
days within a month but remaining on work and doing duty for only 26
days. The other extra holidays may make some marginal variation into 26
working days, but all wage boards and wage fixing authorities or ribunals
in the country have always followed this pattern of fixation of wages by
this method of 26 working days."

And then observed :

"The view expressed in the extract quoted above appears to be legitimate


and reasonable."

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The learned Judge then went on to say:

"Ordinarily of course a month is understood to mean 30 days, but the


manner of calculating gratuity payable under the Act to the employees who
work for 26 days a month followed by Gujarat High Court cannot be called
perverse."

He further observed that it was not necessary to consider whether another


view was possible and declined to interfere under Article 136 in a matter
where the High Court had taken a view favorable to the employees and the
view taken could not be said to be in any way unreasonable and perverse,
and then added :

"Incidentally, to indicate that treating monthly wages as wages for 26


working days is not anything unique or unknown."

12. It may be noted that Section 4(2) of the Payment of Gratuity Act
uses the expression "the employer shall pay gratuity to an employee
at the rate of fifteen days' wages based on the rates of ages last
drawn by the employee." On account of the language used in Section
4(2) it becomes necessary to find out the rate of wages which
necessarily involves the concept of actual working days.

It was on the basis of the aforesaid language of the provisions under the
Payment of Gratuity Act that this Court in the case of Jeevanlal (supra)
observed that "although a month is understood to consist of 30 days,

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gratuity payable under the Payment of Gratuity Act treating the monthly
ages as wages for 26 days is not new or unknown."

13. The principle laid down in the case of Jeevanlal (supra) and Shri
Digvijay Woollen Mills Ltd. v. M.P. Butch AIR 1980 SC 1944 can
have no application for determining the retrenchment compensation
under Section 25F(b) of the Act as the word "average pay" occurring
herein has been defined in Section 2(aaa) of the Act. The concept of
26 working days was evolved having regard to the definition of the
word "wages" as given in Section 2(s) of Payment of Gratuity Act,
which uses the expression "all emoluments which are earned by an
employee while on duty or on leave." Therefore, there is no warrant
or justification for importing the principle of 26 working days for
determining the compensation which is payable in terms of Section
25F(b) of the Act.

14. There is another important feature which deserves notice.


Subsequent to the decision of this Court in Jeevanlal (supra) an
explanation has been added after second proviso to Section 4(2) of
the Payment of Gratuity Act, by Act No.22 of 1987, which reads as
under:-

"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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By adding the explanation, the legislature has brought the statute in line
with the principle laid down in the case of Jeevanlal (supra) and has given
statutory recognition to the principle evolved, viz. that in case of monthly
rated employee the fifteen days' wages shall be calculated by dividing the
monthly rate of wages by twenty six and multiplying the quotient by
fifteen. But, no such amendment has been made in the Industrial Disputes
Act. If the legislature wanted that for the purposes of Section 25F(b) also
the average pay had to be determined by dividing the monthly wages by
twenty-six, a similar amendment could have been made. But the legislature
has chosen not to do so. This is an additional reason for holding that the
principle of "twenty-six working days" is not to be applied for determining
the retrenchment compensation under Section 25F(b) of the Act.

15. We are, therefore, of the opinion that the view taken by the Labour
Court is clearly erroneous in law and has to be set aside. The High
Court did not go into the question at all and summarily dismissed the
writ petition by a one line order observing that the compensation
offered to the workman was short of the amount actually due.

16.For the reasons discussed above, the appeal is allowed. The order
dated 21.3.2005 passed by the High Court and the award of the
Labour Court dated 9.11.2004 are set aside. It is held that the
University had paid the retrenchment compensation to the
respondent Dharam Pal in accordance with law and there is no
infirmity in the order passed whereby his services were terminated.
No costs.

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Case Study-2

Management of India Hume Pipe Co. Ltd. v/s K. Palaniswami and


Anr. on 14/12/1966

JUDGMENT: M. Anantanarayanan, C.J.

1. This appeal by the employer, the Management of M/s India Hume


Pipe Co.,Ltd. raised a question of considerable interest, upon which
there appeared a paucity of authorities in the Industrial Law, both of
this country and of such advanced countries as the United States or
the United Kingdom. The actual issue involved arises, with reference
to the application of the definition in Section 2(aaa) of the Industrial
Disputes Act, of the expression "average pay", as meaning the
average of the wages payable to a workman.

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2 The situation in which the issue arose before Srinivasan J. in W. P.
No. 568 of 1964 (the judgment in which is reported in Palaniswami
v. India Hume Pipe Co., 1965-2 Lab LJ 541 (Mad), is not in dispute.
The company, which is the appellant before us, closed down on 30th
June 1963. 47 workmen were retrenched, consequent on the closure,
and they admittedly became entitled to retrenchment compensation
under Section 25(F) of the Industrial Disputes Act. Section 25(F)(b),
uses the expression "equivalent to fifteen days' average pay for every
completed year of continuous service", and the question before the
learned Judge was how average pay was to be computed, on the facts
and under Industrial law.

3 Admittedly, the section which applies in Section 2(aaa) and, as we


earlier noted, this defines "average pay" as "the average of wages
payable to a workman". There are then three categories set forth, and
a residual category. The first is the case of 'a monthly paid workman'
the second, the case of 'a monthly paid workman' and the third, the
case of a 'a daily paid workman'. The residual category is that of
persons whose average pay cannot be calculated upon any of these
bases; in such cases, the pay is to be calculated as the average of the
wages payable to a workman during the period that he actually
worked.

4 It was contended by the learned counsel for the employer


organization (Sri Ratan), before the learned Judge, as before us, that
the residual clause must apply to the present case, as these workmen
were paid, by a practice extending for a long number of years, once

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every fortnight. But, indisputably, the determinate basis of the wages
was per diem; in other words, each of these workmen could claim to
be "a daily-rated worker". The learned Judge pointed out that the
learned counsel (Sri Ratan,) did not dispute that a wage period of
14days has been fixed, at no time. Before us also, the relevant
standing orders were referred to and scrutinised, and we can find no
such decision in that regard. All that has happened in these cases is
that wages have been determined per diem, but that, as a matter of
practice, the workmen were paid once every fortnight. Under those
circumstances, the learned Judge held that the residual clause did not
apply, nor could it be argued that these workmen were persons who
could be said to be either 'weekly paid' or 'monthly paid'. The
learned Judge finally summed up the discussion in the following
form:

"The result would be that the average pay in the instant case is really
equivalent to the daily wage of the worker". We have been at some
pains to scrutinise the available authorities, to see whether any light
is thrown in them upon the definition and categories in Section
2(aaa) of the Industrial Disputes Act. We are unable to find anything
which is directly in point, but we think that it can be made clear, by
virtue of a brief analysis, that, on the present facts, the decision of
the learned Judge (Srinivasan J.) is correct and that, indeed, it is the
only possible conclusion.

5 T.S.T. Co., Ltd. v. Perumal Naidu, AIR 1958 Mad 25, a decision of
the Bench consisting of Rajagopalan and Rajagopala Aiyangar JJ. is

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relevant, as showing that the learned Judges came to the conclusion
that where a remuneration was calculated on the basis of wage
periods extending over a month, such remuneration did not cease to
be 'wages' under the Payment of Wages Act 1936, merely because
the wage period was one month, and not a lesser period. The point
which is helpful here is that the learned Judges thought that the
concept of "wage period" logically implied some period of time, on
the basis of which, or in determine relation to which the
remuneration was specified. Our attention has been drawn to Section
4(1) of the Payment of Wages Act IV of 1936, and we find that the
periods "in respect of which such wages shall be payable" are to be
the "wage periods" specified in that section. Our attention has also
been drawn to the Minimum Wages Act XI of 1948 and to Section
3(3)(b), which refers to minimum wages which may be fixed 'by the
hour, by the day or by any larger wage period".

6 We think that there is an essential difference, between a period by


which the wages are paid, and the intervals at which the actual
payments are made. It is conceivable, for instance, that even in the
case of an employee whose wage period is one month, and there is a
determine wage on that basis, in actual practice, he is receiving the
accumulated wages once every quarter. That may be a matter of
mutual convenience, and, obviously, the "wage period", in its
essential sense, can differ from the actual occasions of payments or
the intervals separating them. This view of the implications of the
definition in Section 2(aaa) of the Act can, we think, be justified, by
bringing out the features inherent on the concept of 'average pay'.

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7 Sri Ratan argues that we must have regard only to the strict and
literal meaning of the words of the statute; according to hi, "daily
paid workmen" simply implies workmen who are paid per diem, in
actual fact. The workmen in the present case were receiving their
wages once every fortnight, and they do not fall into any of the three
categories of Section 2(aaa). They fall, it is claimed, only into the
residual category. But, as the learned Judge (Srinivasan J.) has
shown, this mode of calculation may involve considerable hardship
to several of these workmen, who have been in employment for long
periods, and whose wages have hence accelerated from low levels to
higher levels. We do not think that we can accept the contention of
the learned counsel, as it is indefensible. As we have earlier stressed,
the question is not whether theactual occasions of payment were at
fortnightly intervals, but whether the determinate basis of the wage
was a 'wage period' of a day, or a longer period. In the present case,
there was simply no wage determination on the basis of a fortnight,
and this is not disputed. The 'wage period' was the day, the
determinate basis was that and all that has happened is that the
employer added up the totals of the daily wage each fortnight, and
paid his workmen. The issue is not materially different because of
leave rules, which enabled the employees to earn wages, even when
they were absent on leave, and here also we must overrule the
contention of the learned counsel for the appellant organisation. In
Stroud's Judicial Dictionary, under the word "Paid" we find an
illuminating note based on Gether v. Capper, (1855) 15 CB 701, to
the effect that the word "paid" should be read as meaning

5560
"contracted to be paid". In the present case, the workmen contracted
with the employer and the employer contracted with them, to pay
wages per diem.

8 We have referred to other treatises upon the specific concept of


Wages, such as Kothari on "Wages, Dearness allowance and Bonus"
and Rothenberg on "Labour Relations" 1940, but we regret that we
have not been able to find any reference to this particular aspect of
the concept of "average pay". But whatever might be the case with
regard to some other situation in which there is a 'wage period', in
the true sense of a period for which wages have been determined on
the basis of that interval of time, in the present case, it appears to be
indisputable that the wage period was only the day and that wages
were rated by the day. Consequently, we confirm the decision of the
learned Judge (Srinivasan J.) in this respect and dismiss the appeal.

The first respondent will have costs in this appeal Rs. 100.

9. Appeal dismissed.

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Bibliography
• The Industrial Disputes Act, 1947 with exclusive notes by S.D Puri,
Advocate, Publisher:Snow White Pulications, Mumbai
• Law, Ethics and Communication, Author and publisher: Board of
Studies The Institute of Chartered Accountants of India

REFERENCE WEBSITES
• www.manupatra.com
• www.legalpandit.com
• www.supreemcourt.com
• www.indiankanoon.org

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EPILOGUE
The main findings about the subject are astounding. Within this project
conflicts between various industries and the workman is studied upon
keenly.

However, one of the important element of this project was to investigate


and discuss about the scope and limitations of the ‘management’ and
‘worker’ relationship seen through the kaleidoscope of a management
student.

In addition, scrutinizing- all kinds of relationship between a workman and


the industry, managerial responsibility of industries and institutions
appointing workman, their disputes and behavioral pattern, within the light
of the principles incorporated within the Legal Frame of Reference, few
conclusions are drawn apparently.
Although the main objective was to learn to what extent companies are
able to implement the principles of the legal system with reference to
definitive Laws and Acts like- Industrial Dispute Act, the Labour Act,
Workman’s Compensation Act, Workman’s Compensation Rules, the

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Industrial Employment Act, the Minimum Wages Act, Payment of Bonus
Act, etc., the concluding result may be as follows:
• Unethical Practices are practiced by managements or the governing
‘corporate bodies’ of the industry at the cost of the workman’s
blood.
• Sometimes, an industry with inappropriate management
deliberately attempts to exploit its workmen eventually ending up
in disputes.
• Disputes like salaries, wages, bonuses etc becomes the main cause
of conflict between the industry and the workman. This often ends
up with the ‘blood’ of the work man eventually resulting in his
elimination/exit.
• Lack of communication between the management and the
workman also results a conflict between the both where the
workman ends up as the looser.
However, it is necessary to maintain a certain level of cautiousness with
respect to the above conclusions, since these conclusions are based upon
the findings with respect to a limited amount of case studies and
investigations. The findings are not at all contradictory as they are based on
real legal battle through a court of law.

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