Holding

Section 2(e) of the Payment of Gratuity Act, 1972 excludes railway servants governed by the 1993 Rules, so the Act does not apply and the employee is not entitled to gratuity under it.

Summary

The case concerned whether a railway employee who retired on 31 January 1995 was entitled to gratuity under the Payment of Gratuity Act, 1972 or whether the Railway Services (Pension) Rules, 1993 governed his benefit. The Union of India argued that Section 2(e) of the 1972 Act expressly excludes persons holding a post under the Central Government whose service conditions are governed by another law providing for gratuity, namely the 1993 Rules. The respondent contended that the definition of "employee" should be read conjointly with other provisions of the Act and that the dearness‑allowance recommendations of the Fifth Pay Commission should apply. The Supreme Court held that the exclusionary clause in Section 2(e) removes railway servants governed by the 1993 Rules from the ambit of the 1972 Act, that the Pritam Singh decision was not binding as it did not consider the statutory exclusion, and that the Fifth Pay Commission recommendations were prospective from 1 April 1995 and thus inapplicable. Consequently, the employee was not entitled to gratuity under the 1972 Act. The appeal was allowed.

Issues considered

Whether Section 2(e) of the Payment of Gratuity Act, 1972 excludes railway employees governed by the Railway Services (Pension) Rules, 1993 from its purview.
Whether the Fifth Pay Commission's dearness‑allowance recommendations apply retrospectively to an employee who retired on 31 January 1995.
Whether the decision in Union of India v. Pritam Singh is a binding precedent for the present case.

Legislation cited

Payment of Gratuity Act, 1972s. 2(1), s. 2(a)(i), s. 2(e), s. 2(f), s. 4
Railway Services (Pension) Rules, 1993s. Rule 15(4)(ii), s. Rule 49, s. Rule 70

Subjects

Payment of Gratuity ActRailway Services (Pension) RulesEmployee definitionSection 2(e) exclusionFifth Pay Commissiondearness allowanceprecedentPritam Singh casegratuity entitlement

Judgment

UNION OF INDIA AND ANR.
.
A
v.
MANIK LAL BANERJEE

Jll LY 26. 2006

B [S.B. SINHA AND DAL VEER BHANDARI, JJ. J

Service Law:

Payment of Gratuity Act. 1972, Ss. 2!eJ & 2(j)!Rai/way Service (Pension)
c Rules, 1993; Rule 15(/)(ii):
Paymenl of Death-cum-Ri!lirement Gratuity-1972 Act or Railway
Services (Pension) Rules- Applicability of-Held: Section 2(c} of 1972 Acl
excluding .fiwn its purview an employee holding a post under Central
D Government and whose terms & conditions of service governed by any other
AcliRu/,:s providing for payme/1/ of gralllit;~-Since, non-applicability of 1972
Act and consequent applicabilitv of the Railway Services Pension Rules to
Railway employees was not in issue in the decided case of Prilam Singh,
Tribunal erred in placing reliance on the principle evolved in that case while
deciding 1he issue in favour of the employee- -Both the ( 'ourts below failed to
E pruper~v cons/rue Lhe provisions of 1972 Ael--Hence, the employee in queslion
not en1i1/ed to paymenl of gratuity in terms of 1972 Ac/.

Fifih Pay Commission's Recommendation-Increase in dearness pay-·
Effective date·-Entitlement lo--He/d: Since Central Government accepled the
recommendations wilh prospeclive e.ffec/ from 1../.1995 and the employee in
F question retired on 31.1.1995, bene.fil of the recommenda1ions not applirnhle
IV him.

IYords and Phruses:

'Employee' and 'Employer' -Meaning of in the context of Payment of
G <Jratu11y Act, 1972.
The question which arose for determination in this appeal was as to
whether a Railway employee who retired from service on 31.1.1995 was
entitled to get gratuity in terms of provisions of the Payment of Gratuity

H 66
U.0.1. v. MANIK LAL BANERJEE 67

Act, 1972 in preference to the Railway Services Pension Rules, 1993. A
Appellant contended that Section 2(e) of the 1972 Act will have no
application in view of the fact that the Respondent being a railway servant
was an employee of the Central Government and was governed by the 1993
Rules.
B
Respondent-employee submitted that Section 2(e) of the 1972 Act
should be interpreted conjointly with Section 2(1) of the Act while defining
'employment' and Section 2(a)(i) of the Act in defining 'establishment' and
construing so, it must be held that the 1972 Act is applicable to the cases
of railway employees also; that in view of Rule 15(4)(ii) of the 1993 Rules, C
the pension and commuted value thereof are only governed by the Pensions
Act, 1871, therefore, the matter relating to payment·of gratuity could not
have been brought within the purview of the 1993 Rules; that since pension
and gratuity are not bounties, the same should be given a liberal
construction; that the decision of the Authorities to pay 20% dearness
allowance in emoluments to him for the purpose of gratuity being not a D
decision under a legislative act, the same is subservient to the provisions
of the 1972 Act; and that the .Fifth Pay Revision Commis~ion having made
an interim report that 90% of dearness allowance should be paid to the
employees who have retired during the period from l.4.1995 to 31.12.1995,
the Respondent should not be deprived of such benefit.
E
Allowing the appeal, the Court

HELD:l.1. The interpretation clause contained in Section 2(e) of the
Payment of Gratuity Act takes out from its purview a person who holds
inter alia a post under the Central Government and whose terms and
conditions of service are governed by an Act or the Rules providing for F
payment of gratuity. 172-D]

1.2. Since railway servants are governed.by the provisions of the 1993
Rules, they shall not be governed by the 1972 Act. The High Court noticed
the definition of 'employee' contained in Section 2(e) of the 1972 Act, G
however, while deciding the issue it fell into an error in coming to the
conclusion that there was nothing in the 1972 Act so as to exclude the
benefit thereof to a railway employee. It failed to properly construe the

) said provision. [74-C-D-El

2.1. The Tribunal granted relief to the Respondent-employee solely H
68 SUPREME COURT REPORfS (20061SUPP.4 S.C.R.

A relying on or on the basis of a decision of the Central Administrative
Tribunal in the case of Pritam Singh. However, in that case, indisputably,
the question as regards non-applicability of the 1972 Act and consequent
applicability of the Railway Services Pension Rules, 1993 had not arisen
for consideration. (73-B]

B Union of India v. Pritam Singh, Civil Appeal No.937 of (1995) decided
by the Supreme Court on 13.2.2002 and Federation of Central Government
Pensioners' Association Organisations, Calcutta v. Union of India, O.A.
NO. 700 of 2004 decided by the Principal Bench of the Central
Administrative Tribunal on l.10.2004, referred to.
c 2.2. It is well-settled that a decision is an authority for what it decides
and not what can logically be deduced therefrom. The decision in Pritam
Singh case having indisputably not taken into consideration, the
exclusionary clause contained in Section 2(e) of the 1972 Act cannot be
held to be an authority for the proposition that despite the provisions of
D the 1993 Rules, the 1972 Act would apply in the case of the railway
servants. [73-G-H; 74-A]
....
2.3. It is now well-settled that if a decision has been rendered without
taking into account the statutory provision, the same cannot be considered
to be a binding precedent. This Court, in the case of Pritam Singh, while
E exercising its discretionary jurisdiction, might have refused to interfere
with the decision. The same, therefore, did not constitute any binding
precedent. The Tribunal and consequently the High Court, therefore,
committed a manifest error in holding otherwise. (74-Bf

Union of India v. Pritam Singh, Civil Appeal No.937 of 1995 decided
F by the Supreme Court on 13.2.2002, referred to.

3.1. The Fifth Pay Commission no doubt recommended that dearness
pay be linked to All India Consumer Price Index of 12.1.1966 as on
1.7.1993 but, the entitlements of the employees in terms thereof was
G directed to be prospectively effected with effect from 1.4.1995. The Central
Government accepted the said recommendations only with prospective
effect from 1.4.1995 in terms whereof97% of the dearness allowance was
to be paid to those who were drawing salary up to Rs. 3500/- as basic pay.
The Respondent retired on 31.1.1995. The recommendations of the Fifth
Pay Commission, thus, were not applicable in his case. (75-C-Df
-
H
U.0.1. v. MANIK LAL BANERJEE [SINHA, J.] 69
)
3.2. It is now a well-settled principle of law that financial implication A
is a relevant factor for accepting revision of pay. The matter might have
been different if the revised scale of pay in terms of the recommendations
of the Fifth Pay Commission would have been made applicable to the cases
of the employees who had also retired prior to 1.4.1995. (75-E-F(

Hee Voluntary Reid. Emps. Welfare Soc. & Anr. v. Heavy Engineering B
Corporation ltd & Ors., (2006) 2 SCALE 660; State ofAndhra Pradesh and
Anr. v. A.P. Pensioners Association & Ors., JT (2005) 10 SC 115 and U.P.
Raghavendra Acharya and Ors. v. State of Karnataka & Ors., (2006) 6
SCALE 23, relied on.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3166 of2006. C
From the Judgment and Order and dated 14.3.2005 of the High Court
of Calcutta in W.P.C.T. No. 124/2005.

K.P. Pathak, A.S.G., V. Mohana and B. Krishna Prasad for the D
Appellants.

Manik Lal Banerjee, Respondent-In-Person.

The Judgment of the Court was delivered by

S.B. SINHA, J. Leave granted. E
The Respondent was a Station Master working in Sodepur Railway
Station, Eastern Railway. He retired on 3,1 .1.1995. He was paid 16V. months
emoluments comprising basic salary and 20% dearness allowance towards
Death-Cum-Retirement Gratuity.
F
----"
_. One Pritam Singh who is said to be similarly situated, however, claimed
and obtained such benefits of gratuity in terms of the provisions contained in
the Payment of Gratuity Act, 1972 (for short "the 1972 Act") in terms whereof
the element of dearness allowanc~ was calculated at the rate of 125% of basic
salary. A special leave petition filed thereagainst was dismissed by this Court G
by an order dated 13 .2.2002 holding:

"This is not a fit case for our interference under Article 136 of the
Constitution. Hence the appeal is dismissed."

Principally, relying on the said decision, the Respondent filed an original H
70 st:PREME COURT REPORTS [2006] SUPP. 4 S.C.R.

A application before the Central Administrative Tribunal claiming payment of
gratuity on the same terms and for recovery of purported arrears of the
difference of gratuity. The Tribunal by an order dated 25.2.2004 directed the
Appellant to consider the Respondent's case whereupon a speaking order was
passed by the Appellant on 4.6.2004 inter a/ia holding that the case of the
Respondent was not governed by the provisions of the 1972 Act but by the
B provisions of the Railway Services (Pension) Rules, 1993 (for short "the
1993 Rules").

Another original application was filed by the Respondent questioning
the validity of the said order before the Tribunal which was registered as OA
C No. 576 of2004. The said application was allowed by an order dated 1.12.2004
holding inter alia:

''Mr. De, the learned counsel for the respondents to a query replied
that Pritam Singh case was complied with by the Railway Authorities.
It is most unfortunate to state here that the DRM treated the matter
D in a different manner in order to avoid payment and has passed such
illegal order by stating that dismissal of SLP by the Hon 'ble Supreme
Court does not amount to a decision on merits. He has lost sight of
the fact that the CAT does not hold the jurisdiction to sit in appeal
against the order passed by the Controlling Authority under the
Gratuity Act. In Pri1am Singh ·s case an independent direction was
E passed by the CAT by invoking the provisions of Gratuity Act. Similar
benefit ought to have been given to the present applicant. From the
totality of the facts and circumstances of the case, I direct the
respondent No. 2 to pay the Gratuity as claimed by the applicant in
terms of Section 4 of the Indian Gratuity Act, 1972 together with the
F interest @12% per annum from the date when it became due till the
date of payment and file compliance report within four months, failing
which appropriate action, as deemed fit, will be taken."

A writ petition filed by the Appellant questioning the legality of the
said Order was dismissed by a Division Bench of the High Court holding that
G the 1993 Rules do not make an employee of the Railways disentitled to the
benefit of gratuity under the 1972 Act. It was furthermore held that there was
no reason as to why the decision of the Tribunal in Pntam Singh would not
be given effect to.

Mr. K.P. Pathak, learned Additional Solicitor General appearing on
H behalf of the Appellant urged that Section 2(e) of the 1972 Act will have no
U.0.1. v. MANIK LAL BANERJEE [SINHA, J.] 71
application in view of the fact that the Respondent being a railway servant A
was an employee of the Central Government and was being governed by the
1993 Rules.

Mr. Manik Lal Banerjee, Respondent appearing in person, on the other
hand, contended that Section 2( e) of the 1972 Act should be interpreted
conjointly with Section 2(l) defining 'employment' and Section 2(a)(i) defining B
'establishment' and so construed, it must be held that the same is applicable
to the cases of railway employees also. Strong reliance in this behalf has been
placed on The Executive Engineer (Construction) Southern Railway, Qui/on
and Ors. v. M.P. Sankara Pillai, [ILR 1981 (1) Ker 164]

It was urged that in view of Rule 15(4)(ii) of the 1993 Rules, as pension
c
and commuted value thereof are only governed by the Pensions Act, 1871,
the matter relating to payment of gratuity could not have been brought within
the purview of the I 993 Rules. As pension and gratuity are not bounties, the
same should be given a liberal construction. Mr. Banerjee furthermore
contended that the decision of the Joint Consultative Machinery (JCM) to D
pay 20% dearness allowance in emoluments for the purpose of gratuity being
not a decision under a legislative Act, the same is subservient to the provisions
of the 1972 Act. Jn any event, the Fifth Pay Revision Commission having
made an interim report that 90% of dearness allowance should be paid to the
employees who have retired from 1.4.1995 to 31.12.1995, there is no reason E
as to why the Respondent should be deprived from the benefit thereof.

The I 972 Act was enacted to provide for a scheme inter alia for payment
of gratuity to employees in relation to railway companies.

Section 2(e) of the 1972 Act defines 'employee' to mean "any person F
(other than an apprentice) employed on wages, in any establishment, factory,
mine, oilfield, plantation, port, railway company or shop to do any skilled,
semi-skilled, or unskilled, manual, supervisory, technical or clerical work,
whether the terms of such employment are express or implied, and whether
or not such person is employed in a managerial or administrative capacity, G
but does not include any such person who holds a post under the Central
Government or a State Government and is governed by any other Act or by
any rules providing for payment of gratuity." The definition, thus, excludes
an employee holding civil post under the Central Government and government
by another Act or Rules providing for gratuity.
H
Section 2(f) of the 1972 Act defines 'employer' inter a/ia to mean, in
72 SUPREME COURT REPORTS [20061 SUPP. 4 S.C.R.

A relation to any railway company belonging to Oi under the control of the
Central Government or the State Government, a perso~ or authority appointed
by the appropriate government for the supervision and control of the
employees. Section 4 provides for payment of gratuity to an employee on the
termination of his employment after he has rendered continuous service for
B not less than five years inter a/ia on his superannuation. Sub-section (2) of
Section 4 provides that 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, which amount in view of 3ub-section (3) of Section 4
shall not exceed three lakhs and fifty thousand rupees.
c
The 1972 Act is appiicable inter alia to the 'establishment' belonging
to a railway company. The amount of gratuity, however, is payable to an
employee. The interpretation clause contained in Section 2(e) takes out from
the purview of the said Act a person who holds inter alia post under the
D Central Government and whose terms and conditions of service are governed
by an Act or the Rules providing for payment of gratuity. The 1993 Rules
provides for payment of gratuity in Rule 70 in the following terms:

"70. Retirement gratuity or death gratuity.-( I )(a) In the case of a
railway servant, who has completed five years' qualifying service
E and has become eligible for service gratuity or pension under rule 69,
shall, on his retirement, be granted retiri;ment gratuity equal to one-
fourth of his emoluments for each completed six monthly period of
qualifying service subject to a maximum of sixteen and one-half
times the <:moluments and there shall be no ceiling on reckonable
emoluments for calculating the gratuity .... "
F
Rule 49 of the 1993 Rules provides for the manner in which emoluments
of such an employee should be calculated. 'Pay' in those rules means the pay
in the revised scales under the Fourth Pay Commission Report.

G Following representations made on behalf of the employees;.the Central
Government in a JCM conceded grant of a part of dearness allowance to be
reckoned as dearness pay (DP) for the purpose of computing the amount of
gratuity and the same was treated an additional advantage over and above
those allowed in the recommendations of the Fourth Pay Commission. The
quantum of such dearness pay was taken on the Consumer Index as on
H I. 7.1988 and 20% of dearness allowance was declared to be payable as
-
U.0.1. v. MANIK LAL BANERJEE [SINHA, J.] 73
dearness pay. Such benefit was extended also to the railway employees whose A
retirement had taken place on or after 16.9.1993.

The Tribunal indisputably granted relief to the Respondent solely relying
on or on the basis of the decision in Pritam Singh. In Pritam Singh 's case
indisputably the question as regards non-applicability of the 1972 Act and
consequent applicability of the 1993 Rules had not arisen for consideration. B
The controlling authority in Pritam Singh 's case proceeded on the basis that
the provisions of the 1972 Act were applicable. The Tribunal in Pritam Singh
opined:

" ... The Controlling Authority has considered the definition of term C
'wages' and came to the conclusion that the applicant is eligible for
getting the gratuity. We do not see any infirmity or illegality on the
order as averred by the Petitioner in this Original Application.
According to us, there is no merit in the application which is only to
be dismissed. Accordingly, we dismiss Original Application with no
order as to costs." D
Our attention has also been drawn to the fact that the Central
Administration Tribunal, Principal Bench in OA No. 700 of 2004 in the
matter of Federation of Central Government Pensioners' Association
I Organisations, Calcutta v. Union of India, by a judgment and order dated I st E
October, 2004 held that the decision of the Tribunal in Pritam Singh was
rendered per incuriam and, thus, did not create any binding precedent. The
Railway Administration in terms of its speaking order dated 4.6.2004 also
held so. The Tribunal, unfortunately, did not apply its mind to that aspect of
the matter and proceeded to grant relief to the Respondent herein solely
relying on or on the basis of the said decision. Pritam Singh, in our opinion,· F
did not create any binding precedent. Only because this Court dismissed the
special leave petition, the same would not mean that any law within the
meaning of Article 14 of the Constitution was laid down thereby. Pritam
Singh was evidently rendered per incuriam as the statutory provisions relevant
for determining the issue had not been taken into consideration. G
It is well-settled that a decision is an authority for what it decides and
not what can logically be deduced therefrom. The decision in Pritam Singh
having indisputably not taken into consideration, the exclusionary clause
contained in Section 2(e) of the 1972 Act cannot be held to be an authority
for the proposition that despite the provisions of the 1993 Rules, the 1972 H
74 SUPREME CUllRT REPORTS [2006] SUPP. 4 S.C.R.

A Act would apply in the case of the railway servants.

It is now well-settled that if a decision has been rendered without
taking into account the statutory provision, the same cannot be considered to
be a binding precedent. This Court, in Pritum Singh, v.hile exercising its
discretionary jurisdiction, might have refused to interfere with the decision.
B The same, therefore, did not constitute any binding precedent. The Tribunal
and consequently the High Court, therefore, committed a manifrst error in
holding otherwise.

Submission of Mr. Banerjee that if the 1972 Act applies to an
C establishment belonging to a railway company and the persons specified in
Section 2(f) are the employers, despite exclusion of railway servants governed
by the provisions of the 1993 Rules from the purview of the definition of
'employee' in terms of Section 2(e) of the Act, the case shall be governed by
tLe 1972 Art, cannot be accepted.

D The High Court noticed the definition of'employec' contained in Section
2(e) of the 1972 Act but while deciding the issue it foll into an error in
coming to the conclusion that there was nothing in the 1972 Act so as to
exclude the benefit thereof to a railway employee. It failed to properly construe
the said provision.
E The Kern la High Court in /i;f P. Sankara Pillai (supra), whereupon
strong reliance has been placed by Mr. Banerjee, was considering a case of
casual labour. Indian Railway Administration although was held to be an
establishment within the meaning of the 1972 Act, it was clearly stated that
where the person was employed in Railway Administration as casual labourer
F on wages not exceeding Rs. 1000/- per mensem and was holding Civil Post
in the Central Government, but subsequently absorbed in temporary regular
service as temporary laskar in the same establishment; it would be impossible
to escape the conclusion that the person was not an employee as defined in
Section 2(e) and he would be entitled to claim gratuity allowance in respect
G of the period of his service as casual labourer in Railway Administration
under Section 4, even in the Central Government at the time of retirement.

The decision of the Kerala High Court, thus, does not advance the case
of the Respondent herein. Therein the question raised herein was not raised.

H Reliance of Mr. Banerjee upon Rule 15(4)(ii) of the 1993 Rules is
misplaced. Rule 15 provides for recovery and adjustment of liuvemment or
U.0.1. v. MANIK LAL BANERJEE [SINHA, J.) 75
railway dues from pensionary benefits. Sub-rule (I) of Rule 15 enjoins a duty A
on the Head of Office to ascertain and assess Government or railway dues
payable by a railway servant due for retirement, whereas sub-rule (2) thereof
provides for recove~ of the dues against the retiring railway servant in terms
of sub-rule (4). Clause (ii) of sub-rule (4) of Rule 15 stipulates recovery of
losses specified in sub-clause (a) of clause (i) of sub-rule (4) and which has B
nothing to do with the computation of the amount of payment of gratuity.

We have noticed hereinbefore that in terms of the 1993 Rules the
emoluments were to be paid in terms of the recommendations made by the
Fourth Pay Commission. The Fifth Pay Commission no doubt recommended
that dearness pay be linked to All India Consumer Price Index of 12.1.1966 C
as on 1.7.I 993 but, the entitlements of the employees in terms thereof was
directed to be prospectively affected with effect from 1.4.1995. The Central
Government accepted the said recommendations only with prospective effect
from 1.4.1995 in tenns whereof 97% of the dearness allowance was to be
paid to those who were drawing salary up to Rs. 3500/- as basic pay. The
Respondent retired on 31.1.1995. The recommendations of the Fifth Pay D
Commission, thus, were not applicable in his case.

It is now a well-settled principle of law that financial implication is a
relevant factor for accepting revision of pay. [See Hee Voluntary Reid Emps.
Welfare Soc. & Anr. v. Heavy Engineering Corporation Ltd. & Ors., (2006) E
2 SCALE 660 and State of Andhra Pradesh and Anr. v. A.I'. Pensioners
Association & Ors., JT (2005) I 0 SC 115.

The matter might have been different if the revised scale of pay in
tenns of the recommendations of the Fifth Pay Commission would have been
made applicable to the cases of the employees who had also retired prior to F
1.4.1995 as was noticed by this Court in U.P. Raghavendra Acharya and
Ors. v. State of Karna/aka & Ors., (2006) 6 SCALE 23.

For the reasons aforementioned, the impugned judgment cannot be
sustained which is set aside accordingly. The appeal is allowed. No costs.
G
S.KS. Appeal allowed.