Holding

‘Completed year of service’ means a continuous year of service measured from the employee’s date of joining, not the calendar year, so gratuity for a seasonal employee is payable at the rate of seven days' wages for one season per completed year of service.

Summary

A coffee curing establishment, declared a seasonal industry, operated from September to June and was closed June to September. The workmen claimed gratuity at the rate of seven days' wages for two seasons in each calendar year, arguing that the accounting year (January‑December) split their service into two seasons. The employer contended that there was only one continuous season per completed year of service, thus entitlement to only one season's gratuity. The Controlling Authority and the Karnataka High Court accepted the workers' view and awarded gratuity for two seasons per calendar year. On appeal, the Supreme Court held that ‘completed year of service’ under the Payment of Gratuity Act, 1972 means a continuous year measured from the employee’s date of joining, not the calendar year, and that the concept of ‘season’ must be applied to each completed year of service. Consequently, the workers were entitled to gratuity at the rate of seven days' wages for a single season per completed year of service. The Supreme Court set aside the High Court order and allowed the appeals.

Issues considered

The meaning of ‘completed year of service’ under the Payment of Gratuity Act, 1972.
Whether the calendar year concept under the General Clauses Act, 1897 applies to the computation of gratuity for seasonal workers.
The interpretation of ‘season’ in the proviso to Section 4(2) of the Gratuity Act for a seasonal establishment.
The correct basis for calculating gratuity entitlement for workers in a seasonal industry.

Legislation cited

General Clauses Act, 1897s. 3(66)
Industrial Disputes Act, 1947s. 25-A(2)
Payment of Gratuity Act, 1972s. 2(b), s. 2(c), s. 4

Subjects

gratuityseasonal establishmentcompleted year of serviceinterpretation of statutesPayment of Gratuity Actcalendar yearcontinuous serviceIndustrial Disputes Act

Judgment

..

ASPINWAL AND CO., KULSHEKAR, MAN GALORE A
v.
LAITHA PADUGADY AND ORS. ETC. ETC.

JULY 26, 1995

(M.M. PUNCHHI AND MRS. SUJATA V. MANOHAR, JJ.J B

Gratuity Act, 1972:

Sections 2(b)(c)-Explanation-Section 4(As it stood prior to
1984)-lnterpretation of. C
Gratuity-Computation or-seasonal industry-Closure from June to
September and operational from September onwards till June in following
year-Maintainint accounting year on the basis of calender year-Workers
held entitled to gratuity for a single season and not for two seasons in each
calender year. D
General Clauses Act, 1897:

Concept of 'year' under Section 3(66)-Held inapplicable to the concept
of 'completed year of service' under Gratuity Act, 1972.
E
Words and Phrases:

Expression 'completed year of service'-Occurring in Section 4 of
Gratuity Act, 1972-Meaning of.

The appellant, a coffee curing establishment, was declared a F
seasonal industry under Section 25·A(2) of the Industrial Disputes Act,
1947. In each calender year it remains closed from June to September aQ.(f.
operated from September onwards till June in the following year. The
respondent-workmen, employed in the appellant-establishment, claimed '
gratuity at the rate of 7 days' wages for two seasons in each calender year
on the basis that calender year was a unit and the period of work stood G
split into two seasons because the accounting year of the appellant was
calender year. The appellant contested the respondents' claim on the
ground that there was only one continuous season starting from Septem-
ber to June of the following year and therefore the workmen were entitled.
to 7 days' wages for only one season. The Controlling authority accepted H
369
370 SUPREME COURT REPORTS (1995) SUPP. 2 S.C.R.

A the workers' claim and granted them gratuity for two seasons at the rate
of 7 days' wages per season in each calender year. The appellant unsuc-
cessfully challenged the order of the Controlling Authority before a single
judge as well as a Division Bench of the High Court. Hence these appeals.

Allowing the appeals and setting aside the order of the High Court,
B this Court

HELD : 1. The Controlling Authority as also both the Benches of
the High Court in ignoring the concept of continuous service for one year,
which has reference to an individual workman and not universally
relatable to the calender year, had wrongly conferred the benefit of two
c seasons to the workmen holding them entitled to fourteen days' wages as
gratuity. (375-D-E]

2. Section 4 of the Payment of Gratuity AEt, 1972 postulates deter-
mination of the 'completed year of service', meaning thereby one year's
D period of continuous service, rendered by an employee for the purposes of
computation of gratuity and therein is a method provided for determining
a completed year of service. The starting point of the said period is from
the date an employee gets employment, which in the nature of things would
vary from employee to employee..It is no where envisaged in the scheme of
the provisions contained in Sections 4, and 2(b) and (c) that the con-
E tinuous service of the employee would be computed in a chain from
calender year to calender year. Completed year of service would plainly
mean continuous service for one year reckonable from the date of joining
employment. It cannot be confused with that of a calender year. The
understanding of the year as a calender year, as available in the General
F Clauses Act is not importable to shadow the concept of 'completed year of
service'. (373-G-H; 374-A-B]

3. The year ref~rred to in Explanation II to Section 2(c) of the Act
obviously is the completed year of service of an employee, meaning thereby
continuous service for one year. When under Second Proviso to· section 4(2)
G the gratuity at the rate of seven days' wages for each season requires to be
worked out, then one bas to see the number of seasons in each completed
year of service of the workman; i.e. his continuous year of service, not
regulated by the calender year. The second proviso would have to be read in
a purposive way, i.e. in the nature of an explanation tied and woven in
H Section 4. In working for each season thus the employee becomes entitled to
ASPINWALAND CO. v. LAITHAPADUGADY 371

gratuity at the rate of seven days' wages per season. [375-A; B; C] A
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 4086-90
of 1986.

From the Judgment and Order dated 19.2.86 of the Karnataka High
Court in W.A. Nos. 325, 323, 324, 322 and 321 of 1986. B
G.B. Pai, O.C. Mathur and Ms. Meera Mathur for J.B.D. & Co., for
the Appellant.

A.K. Ganguli, Pravir Choudhary for the Respondents in CA.Nos.
4086-87 & 4090/86. c
The following Order of the Court was delivered :

These five civil appeals bearing numbers 4086 to 4090 of 1986 would
be disposed of by a common order since the question of law raised in these
is common. D

In each case, there is a workman arrayed as respondent. Undisputab-
ly that workman was employed in a seasonal establishment of the employer-
appellant. The activity of the establishment is curing coffee. The industry
involved has been declared seasonal under Section 25-A(2) of the In-
E
dustrial Disputes Act, 1947. In each calender year the factory remains
closed from the month of June to the month of September. The estab-
lishment as a consequence is in operation from September onward till June
in the year following. The claim of each workman before the Controlling
Authority under the Payment of Gratuity Act, 1972 was that he had a right
to have his gratuity computed at the rate of 7 days' wages for two seasons F
in each calender year on the basis that the calender year is a unit and the
period of work stood split into two seasons. Support for the claim was
sought from the fact that the establishment maintained its accounting year
from January 1 to December 31 and so, it was claimed, computation of
gratuity has to fall in line with the accounting year.
G
The claims of the workmen were disputed by the establishment on
the ground that there was only one continuous season starting from Sep-
tember till June of the following calender year; the nature of the work
demanding closure of the establishment during the monsoon season. It was
contended that the workmen were entitled to 7 days' wages as gratuity for H
372 SUPREME COURT REPORTS [1995) SUPP. 2 S.C.R.

A such season, the period necessarily not terminating by the end of the
calender year and starting a new in the next calender year. The Controlling
Authority by a reasoned order dated July 8, 1983, accepting the claim of
the workmen, granted them gratuity for two seasons at the rate of 7 days'
wages per season in each calender year. Challenge thereto made by the
appellant-establishment before a learned Single Judge of the High Court
B of Karnataka failed. Writ appeals of the appellants-establishment were
dismissed by a Division Bench of that High Court giving rise to these
appeals.

At the outset we need to record prominently that we are concerned
C with the state of Law as existing prior to the year 1984, as thereafter
substantial amendments found way into the Act. It has to be seen whether
in the law then applicable, was the concept of the calender year well
ingrained bearing any relevance, for it is on that concept that the High
Court as also the departmental authorities have based their decision. It
would be worthwhile at this stage to take stock of the provision in. so far
D relevant:

Section 4 provides for payment of gratuity. The relevant provisions
are:

"PAYMENT OF GRATUITY - (1) Gratuity shall be payable to
E an employee on the termination of his employment after lie has
rendered continuous service for not less than five years, -

(a) on his superannuation, or

(b) on his retirement or resignation, or
F
(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
G 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. ·

H EXPLANATION : xxxx
ASPINWALAND CO. v. LAITIIAPADUGADY 373

(2) For every completed year of service or part thereof in excess of A
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 xxxxx
B
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."

Two expressions defined in Section 2 would have to be taken note of C
as they are relevant :

"2. DEFINITIONS - In this Act unless the context otherwise
requires-

(a) xxxx D
(b) "completed year of service" means continuous service for one
year;

(c) "continuous service" means uninterrupted service and includes
service which is interrupted by sickness, accident, leave, lay-off, E
strike or a lock-out or cessation of work not due to any fault of
the employee concerned, whether such uninterrupted or inter-
rupted service was rendered before or after the commencement
of this Act.

EXPLANATION I - xxxxx F

EXPLANATION II - An employee of a seasonal establishment
shall be deemed to be in continuous service 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 the year;" G

Section 4 postulates determination of the 'completed year of service',
meaning thereby one year's period of continuous service, rendered by an
employee for the purposes of computation of gratuity and therein is a
method provided for determining a completed year of service. The starting
point of the said period is from the date an employee gets employment, H
374 SUPREME COURT REPORTS [1995] SUPP. 2 S.C.R.

A which in the nature of things would vary from employee to employee. It is
no where envisaged in the scheme from the above provisions that the
continuous service of the employee would be computed in a chain from
calender year to calender year. Completed year of service would plainly
mean continuous service for one year reckonable from the date of joining
employment. It cannot be confused with that of a calender year. The
B understanding of the year as a calender year, as available in the General
Clauses Act is not importable to shadow for our purposes the concept of
'completed year of service'. To illustrate the point if an employee joins
service in' the first week of July in a particular year, it cannot be said that
for the purposes of the provisions of the Act, he would be deemed to have
C worked for half an year to begin with, and thereafter to have worked for
each calender year till the date of the last one, and then till the year of his
termination. On the contrary, the Act envisages that the day an employee
enters into service his continuous service from year to year would be
computed from the date of his joining. In the nature of things regimenting
D or streamlining the whole concept into calender year apportionments is
totally ill-filled in the scheme of the Act.

Explanation II to Section 2(c) plainly provides that an employee of
a seasonal establishment shall be deemed to be in continuous service, if he
has actually worked for not Jess than seventy five percent of the number of
E days on which the establishment was in operation during the year. Now
what is that year. It obviously is the completed year of service of an
employee, meaning thereby continuous service for one year. The provisions
of Section 4 clearly reveal that before an employee can claim iratuity, he
must have rendered continuous service for not less than five years. Further,
F for every completed year of service or part thereof in excess of six months,
the employer is required to pay him gratuity at the rate 'of fifteen days'
wages based on the rate of last drawn wages by the employee concerrted.
The first proviso relates to the right conferred under sub-section (2) to
employees other than those employed in a seasonal establishment. The
second proviso being so related prominently says that in case of an
G employee employed in a seasonal establishment, the employer· shall pay
gratuity at the rate of seven days' wages for each season. Now the word
'season' herein pre-supposes that the employees has not been employed in
annual or regularly durated work during the days in which the estab-
lishment was in operation during the year. Were it be so, then the employ-
H ment would not be seasonal. Here the unit of reckoning is by means of the
ASPINWALAND CO. v. LAITHAPADUGADY 375

afore-understood continuous service of one year containing a season or A
seasons. And being seasonal, the span of the period of such season can by
the very nature of things be short or large for various reasons but referable
yet to;continuous service within the meaning of Section 2(c). Tying all these
ends together, the conclusion is thus inescapable that when gratuity at the
rate of seven days' wages for each season requires to be worked out, then B
one has to see the number of seasons in each completed year of.service of
the workman, i.e. his continuous year of service, not regulated by the
calender year. The second proviso would have to be read in a purposive
way, i.e. in the nature of an explanation tied and woven in Section 4. In
working for each season thus the employee becomes entitled to gratuity at
the rate of seven days' wages per season. Instantly no disputes had in- C
dividually been raised in such manner with regard to identification of
seasons on the basis of the count of the number of working days in each
completed year of service pertaining to each workman.

For these reasons, we are of the considered view that the Controlling
Authority as also both the Benches of the High Court in ignoring the D
concept of 'continuous service for one year', which has reference to an
individual workman and not universally relatable to the calender year, had
wrongly conferred the benefit of two seasons to the workmen holding them
entitled to fourteen days' wages as gratuity. We, therefore, upset these
orders and direct that the appellant-employer shall pay to the respondents E
gratuity at the rate of seven days wages for each season, continuous as it
is from September of a particular year till June of the following calender
year. The appeals are thus allowed. Since there is no representation on the
other side, there shall be no order as to costs.

T.N.A. Appeals allowed. F