Holding

The settlement requires that any merger of Dearness Allowance with basic pay be reckoned for gratuity, and the terms "addition" and "merger" are synonymous, making the Government Order applicable for computing gratuity.

Summary

The Karnataka State Road Transport Corporation (KSRTC) had a settlement with its employees that tied the rate of Dearness Allowance (DA) to the rates sanctioned by the State Government and required any merger of DA with basic pay to be considered for calculating gratuity. The State Government issued a Government Order on 28 November 1995 merging a portion of DA with basic pay. Retiree R. Krishna Reddy, who retired in March 1996, claimed gratuity based on this merger. The High Court held that the terms "addition" and "merger" are synonymous and allowed the claim. The Supreme Court affirmed that the settlement must be interpreted according to the parties' intention, that the merger of DA is to be taken into account for gratuity computation, and that the employee is entitled to gratuity calculated with the merged DA as per the Government Order. Consequently, the appeal by KSRTC was dismissed.

Issues considered

Whether the Government Order of 28 November 1995 merging Dearness Allowance with basic pay is applicable for computing gratuity under the settlement and the Payment of Gratuity Act, 1972.
Whether the distinction between "addition" and "merger" of Dearness Allowance has any legal significance in the context of gratuity calculation.
Whether the corporation is bound by the State Government's merger of DA for the purpose of determining gratuity.

Legislation cited

Payment of Gratuity Act, 1972s. 2(s), s. 4

Subjects

gratuityPayment of Gratuity ActDearness Allowancemergeradditionsettlement interpretationstatutory corporationemployee benefits

Judgment

- MANAGEMENT OF KSRTC TH. CHIEF LAW OFFICER
v.
A
R. KRISHNA REDDY

NOVEMBER I, 2006

[S.B. SINHA AND MARKANDEY KATJU, JJ.] B

Payment of Gratuity Act, 1972-ss. 2(s) & 4-Gratuity--Computation
of-Appellant-Corporation had its own scheme ofpaying gratuity-Settlement
between workers and Appellant-Corporation providing that rates of DA C
shall be on par with rates sanctioned by State Government to its employees
from time to time and that if State Government merged any portion of DA,
that portion so merged will also be reckoned by Appellant-Corporation for
determining gratuity-State Government merged part of DA with Basic Pay
for which a G.O. was issued-Claim by retiree, for gratuity in terms of the
said G.0.-Maintainability of-Held: Maintainable-High Court right in U
holding that relief cannot be denied on the hyper-techincal view that the
G.O. only speaks of "addition" of DA to Basic pay and not "merger" of DA-
Consequence of "merger" not different from that of "addition".

Appellant, a Statutory Corporation had its own scheme of paying gratuity
at the rate of30 days' basic pay for each completed year of service. Government E
Servants are however entitled to gratuity calculated on the basis of 15 day's
basic pay. A Settlement arrived at between workers and Management of
Appellant-Corporation provided that the rates of Dearness Allowance shall
be on par with the rates sanctioned by the State Government to its employees
from time to time and from the same date and further that if the State F
Government merged any portion of Dearness Allowance being paid to its
employees, that portion of the Dearness Allowance so merged ~ill also be
reckoned by Appellant-corporation for determining Gratuity ~ayable to its
employees State Government merged a part of the Dearness Allowance with
the Basic Pay wherefor a Government Order was issued on 28.11.1995.
G
Respondent retired as a Traffic Inspector in 1996 pursuant to which he
claimed gratuity in terms ofG.O. dated 28.11.1995. The claim was allowed by
the Assistant Labour Commissioner, but the order was reversed in appeal.
Respondent filed writ petition, on which the High Court held that relief cannot

255 H
256 SUPREME COURT REPORTS [2006] SUPP. 8 S.C.R.

A pe denied to him on the hyper-technical view that the G.O. only speaks of
"addition' of Dearness Allowance to the Basic pay and not "merger" of
Dearness Allowance. Holding that there is no difference in meaning of the
two words, namely "addition" and "merger" which are synonymous, the Court
allowed the writ petition. Hence the present appeal.

B Dismissing the appeal, the Court

HELD: 1. Gratuity is payable in terms of Section 4 of the Payment of
Gratuity Act, 1972 to an employee inter alia on his superannuation after he
has rendered continuous service for not less than five years. Sub-section (2)
C of Section 4 of the Act envisages that for every completed year of service, the
employer shall pay gratuity to an employee at the rate of 15 days' wages based
on the rate of wages last drawn by the employee concerned. Sub-section (5) of
Section 4 inter alia provides that the provisions contai~ed therein shall not
affect- the right of an employee to receive better terms of gratuity under any
award or agreement or contract with the employer. What is, therefore, payablt
D by way of gratuity in terms of the scheme was 30 days wages for each
completed year of service. [261-C, D, E)

2.1. As was rightly held by the High Court, different terminologies used
did not make any material difference. Section 4 of the Act itself contemplates
implementation of a settlement. Settlement, therefore, entered into by and
E between the parties was required to be interpreted having regard to the
intention of the parties. What was contemplated by the parties was that the
rates of Dearness Allowance would be at par with the rate sanctioned by the
State Government to its employees from time to dme and from the same date.
It was never contemplated that a different amount of gratuity shall be payable
F to an employee who retires prior to the revision of scale of pay although the
terms of the settlement are applicable to his case. (262-B-C)

2.2. What was necessary to be taken inti) account was the merger of
any portion of the Dearness Allowance •.vith pay which was being paid to its
employees. In such an event that portion of the Dearness Allowance was also
G to be reckoned at appropriate level by the appellant for determining the
quantum of Gratuity payable to its employees. The said settlement was arrived
at for calculating amount of gratuity payable to the employees of the appellant
and not for any other purpose. (162-D]

3.1. It is, not a case where the appellant could legitimately raise a
H contention that any enhancement in the emoluments to its employees by the
... MANAGEMENT OF KSRTC TH. CHIEF LAW OFFICER r. R. KRISHNA REDDY [S.B. SINHA, J.) 257

. ..· State would not automatically enhance the emoluments of the employees of A
the appellant [262-E)

3.2. It has been contended that the effect of the merger and addition of
Dearness Allowance would be different. It may be so. The contention may
ordinarily be applicable to a case of merger of the basic pay vis-a-vis adding
of Dearness Allowance to basic pay, but, herein the same would not make any B
substantive difference for the purpose of payment of gratuity keeping in view
the definition of "wages" contained in Section 2(s) of the Act. It is not a case
where the scheme of the Corporation and the provisions of the Act are
inconsistent with each other. [262-F-G)
3.3. It cannot be accepted that the consequences of merger in a case of C
this nature shall be different in case of addition to the Dearness Allowance
in the scale of pay. In the facts and circumstances of this case, it is not a case
where this Court should take a view different from that of the High Court.
(263-C, DJ
Beed District Central Co-operative Bank Ltd v. State of Maharashtra D
& Ors. (2006) 10 SCALE 40, relied on.
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4637 of2006.

From the Final Judgment and Order dated 9.9.2005 of the High Court of
Kamataka at Bangalore in Writ Appeal No. 7954 of 2003.
E
G.E. Vahanvati, S.G., R.S. Hegde, Chandra Prakash, Rahul Tyagi, Savitri
Pandey and P.P. Singh for the Appellants.

L. Nage~wara Rao, S.B. Mukkannappa and V.N. Raghupathy for the
Respondent.
F
The Judgment of the Court was delivered by

S.B. SINHA, J,: Leave granted.

Appellant is a statutory corporation constituted under the Road
Transport Corporation Aet, 1950. It has its own scheme in terms whereof G
gratuity is being paid at the rate of 30 days' basic pay for each completed
year of service. Government Servants are, however, entitled to gratuity
calculated on the basis of 15 days' basic pay for each completed year of
service. Such is the position also under the Payment of Gratuity Act, 1972 (for
short "the Act"). H
A
258 SUPREME COURT REPORTS [2006] SUPP. 8 S.C.R.

Disputes and differences having arisen by and between the workmen
of the Corporation and the management, a settlement was arrived at on
-
17.07.1999. The said settlement was valid for the period 1.01.1988 and 31.12.1991.
It expired on 31.12.1991, Clause (5) whereof postulated:

"Dearness Allowance
B
The rates of Dearness allowance shall be on par with the rates
sanctioned by the State Government to its employees from time to
time and from the same date. The enhanced Dearness Allowance shall
be paid in cash.

c If during the currency of this settlement, the Government of
Karnataka were to merge ariy portion ofDeame£s Allowance presently
being paid to its employees, that portion of the Dearness Allowance
so merged will also be reckoned a~ appropriate levels by the corporation
for determining the Dearness Allowance, House Rent Allowance, City
. Compensatory Allowance and Gratuity payable to the employees .of
D the corporation, but shall not be reckoned for other purposes."

The State of Karnataka merged a part of the Dearness Allowance with
the basic pay wherefor a Government Order being Gov.emment Order No, FD
27 SRS 95 was issued on 28.11.1995 which is to .the follo~ing effect .

E "The question of revision of pensionery benefits in respect of
Government Servants has been examined by Government in the light
of the recommendations made by the Katnataka State Fourth Pay
Commission and the decision taken by the Government of India on the
Interim Recommendations of the Fifth Central Pay Commission.
Accordingly, the following orders are issued.
F
2. Government are now pleased to order that Dearness Allowance
. I

sanctioned upto the Average All India Consumer Price Index (A.l.C.P.1.)
120 I .66 in Government order No. FD 29 .SRP 93, dated 30th October,
1993 as indicated below, .shall be reckoned as emoluments for the
,
purpose of retirement gr.atuity/ death gratuity 4nder the Karnataka
G
Civil' Services Rules In respc::t of State Government Employees who
retire or die on or after 28th November, 1995:

H

,..•·.
- MANAGEMENT OF KSRTC TII. CHIEF LAW OFFICER 1>. R. KRISHNA REDDY [S.B. SINHA, J.]

Pay Range Rate of Dearness Allowance
to be added to pay for
259

A

calculating gratuity

I. Basic pay upto 3500 per month 90% of basic pay

2. Basic pay between Rs. 3401 67% of basic pay subject to B
upto Rs. 600 per month minimum of Rs. 3150 per
month

3. Basic pay above Rs. 6000 58% of basic pay subject
per month to minimum of Rs. 4020 c
per month"
The appellant, however, contends that act.ial merger of pay had taken
place on 7 .0 l.1999 with retrospective effect from 1.04.1998 wherefor a
Government Order was issued. The Board of Directors of the appellant in
its meeting held on l4.0l.l999 adopted a resolution in the following terms: D
"The Principal Secretary, Finance Department stated that the
provisions of the Gratuity Act, 1972 has to be followed as far as
the ceiling on payment of gratuity is concerned. The legal position
in this regard may be examined in the context of the settlements
reached and appropriate necessary action taken. E
After considering the matter in detail the Board of Directors
resolved as hereunder:

Resolution No. 7808

Approval is accepted for the payment of gratuity to the F
employees of the Corporation from 28.11.1995 in terms of the Gratuity
Act 1972 if it is more advantageous."

The Board of Directors of the appellant also adopted the following
resolution on 26.06.1999:
G
"Approval is accorded to merge the Dearness Allowance as
contemplated in Government Order No. FD 48 SRP 98 dated 7.1.1999
into the Basic Pay of the employee of the Corporation w.e.f. 1.04.1998
by treating the same as Basic D.A. for calculation of Gratuity."
The dispute between the parties centers round the issue as to whether H
260 SUPREME COURT REPORTS [2006) SUPP. 8 S.C.R.

A for the purpose of computation of the amount of gratuity, the order dated
28.11.1995 would be attracted or not.

Respondent herein was appointed on 4.06.1959 as a conductor. He
retired as traffic inspector on 30.03.1996. He claimed gratuity in terms of the
said Gnvernment Order dated 28.11.1995. The same having been denied to
B him, he filed an application before the Assistant Labour Commissioner. and
Controlling Authority under the Act. By an award dated 6.02.l998, he was
held to be entitled thereto. An appeal thereagainst was preferred by the
appel!ant. The Appellate Authority in terms of its order dated 15 .09 .1998
allowed the said appeal. The respondent filed a writ petition before the High
C Court. A learned Single Judge by reason of a judgment and order dated
13.10.2003 allowed the said writ petition inter a/ia holding:

"In so far as tqe other contention that the Government Order only
speaks adding Dearness Allowance to the basic pay wherein Clause
to the basic pay wherein Clause (5) refers to merger of Dearness
D Allowance with basic pay is concerned, I do not find any substance.
The word 'adding of basic pay', 'adding of Dearness Allowance' or
the word 'merger of Dearness Allowance' with the basic pay are
synonymous. There is no difference in meaning with those two phrases.
The ultimate result is the same if such hyper technical interpretation
of these phrases is accepted it would result in great injustice to one
E of the parties to the contract. Moreover, they are not words used in
any status. They are words used by the Government at one place and
the respondents in their order. Moreover, in the subsequent order
passed by the KSRTC they have understood the said word as merger
and has given benefit to its employees. Under the circumstance, I do
F not find any merit in the said contention also."

An intra-court appeal filed thereagainst by the appellant was dismissed.

Mr. G.E. Vahanvati, learned Solicitor General appearing on behalf of the
appellant, principally raised two contentions in support of this appeal:

G (i) The actual merger having taken place on 7.01.1999 upon revision
of the scale of pay, the purported settlement dated 28.11.1995
could not have been construed differently.
(ii) In any event, the pu~ported merger of Dearness Allowance in
respect of the employees of the State was not binding on the
H Corporation.
MANAGEMENT OF KSRTC TH. CHIEF LAW OFFICER'" R. KRISHNA REDDY [S.B. SINHA, J.] 261

Mr. L. Nageshwara Rao, learned senior counsel appearing on behalf of A
the respondent, on the other hand, submitted that the amount of gratuity is
required to be calculated in terms of Section 5 of the Act and in that view
of the matter the rate prescribed therefor must be computed at par with the
settlement. The High Court, the learned counsel would contend, cannot be
said to have committed any illegality in arriving at the said finding.
B
The Act was enacted to provide for a scheme for payment of gratuity
to employees engaged in factories, mines, oilfields, plantations, ports, railway
companies, etc. and for matters connected therewith or incidental thereto.
Gratuity is payable in terms of Section 4 of the Act to an employee inter a/ia
on his superannuation after he has rendered continuous service for not less C
than five years.

Sub-section (2) of Section 4 of the Act envisages that for every completed
y~ar of service, the employer shall pay gratuity to an employee at the rate of
15 days' wages based on the rate of wages last drawn by the employee
concerned. Sub-section (3) of Section 4, however, puts a ceiling on the D
amount of gratuity being Rs. three lakhs and fifty thousand. Sub-section (5)
of Section 4 inter alia provides that the provisions contained therein shall
not affect the right of an employee to receive better terms of gratuity under
any award or agreement or contract with the employer.

What is, therefore, payable by way of gratuity in terms of the scheme E
was 30 days wages for each completed year of service.

'Wages' has been defined in Section 2(s) of the Act in the following
terms:

""wages" means all emoluments which are earned by an employee F
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 i_nclude any bonus, .
commission, house rent allowance, overtime wages and any other
allowance."

We have noticed hereinbefore that the Government of Karnataka in
terms of Government Order dated 28.11.1995 inter alia directed that 90% of
Basic Pay to be added to pay for calculating gratuity. If the basic pay of an
employee was upto Rs. 3500/- per month and was drawing a Dearness
Allowance of Rs. 2000/-, what was to be added was the 90% of the Dearness H
262 SUPREME COURT REPORTS (2006] SUPP. 8 S.C.R.

A Allowance which was being paid. If 90% of the Basic Pay as Dearness
Allowance is to be added to the basic pay, the employee became entitled to "
higher wages on the basis thereof. It is in that sense the question of application
of the merger of Dearness Allowance with the scale of pay arose for all intent
and purport. As was rightly held by the learned Single Judge, different
B terminologies used did not make any material difference. Section 4 of the Act
itself contemplates implementation of a settlement. Settlement, therefore, entered
into by and between the parties was required to be interpreted having regard
to the intention of the parties. What was contemplated by the parties was that
the rates of Dearness Allowance would be at par with the rate sanctioned by
the State Government to its employees from time to time and from the same
C date. It was never contemplated that a different amount of gratuity shall be
payable to an employee who retires prior to the revision of scale of pay
although the terms of the settlement are applicable to his case.

What was necessary to be taken into account was the merger. of any
portion of the Dearness Allowance with pay which was being paid to its
D. employees. In such an event that portion of the Dearness Allowance was also
to be reckoned at appropriate level by the appellant for determining the
quantum of Gratuity payable to its employees. The said settlement was arrived
at for calculating amount of gratuity payable to the employees of the appellant
and not for any other purpose.

E It is, therefore, not a case where the appellant ·could legitimately raise
a contention that any enhancement in the emoluments to its employees by
the State would not automatically enhance the emoluments of the employees
of the appellant. It has been contended before us that the effect of the merger
and addition of Dearness Allowance would be different. It may be so. But,
F having regard to the fact of the present matter and the definition of 'wages'
under the Act, we need not go into the said question.

We have noticed hereinbefore that the contention may ordinarily be
applicable to a case of merger of the basic pay vis-a-vis adding of Dearness
Allowance to basic pay, but, herein the same would not make any substantive
G difference for the purpose of payment of gratuity keeping in view the definition
of "wages" contained in Section 2(s) of the Act. It is not a case where the
scheme of the Corporation and the provisions of the Act are inconsistent with
each other.

In Beed District Central Co-operative Bank Ltd. v. State of Maharashtra
H
MANAGEMENT OF KSRTC TH. CHIEF LAW OFFICER 1·. R. KRISHNA REDDY (S.B. SINHA, J.J 263

& Ors., (2006) I 0 SCALE 40, it was laid down: A
" .... Undoubtedly, the Payment of Gratiiity Act is a beneficial statute.
When two views are possible, having regard to the purpose, the Act
seeks to achieve being a social welfare legislation, it may be construed
is
in favour of the workman. However, it also trite that only because
a statute is beneficent in nature, the same would not mean that it ' B
should be construed in favour of the workmen only although they are
not entitled to benefits thereof."

For the reasons aforementioned, we are unable to agree with the
submissions made by the learned Solicitor General that the consequences of ,C
merger in a case of this nature shall be different in case of addition to the
Dearness Allowance in the scale of pay.

Keeping in view the facts and circumstances of this case, we are of the '
opinion that it is not a case where this Court should take a view different from
that of the High Court. The Appeal is dismissed with costs. Counsel's fee D
assessed at Rs. 10,000/-.

B.B.B. Appeal dismissed