1. The facts giving rise to this second appeal are that the plaintiff-respondent S. Bhag Singh joined the service of the defendant His Highness Sir Harindar Singh, Ruler of former Faridkot State, on 6th of March, 1945 and continued to serve him for a little over nine years when his services were terminated on the ground that the defendant had been unavoidably compelled to effect retrenchment in the establishment. The Controller of the Personal Estates of the defendant by means of a printed letter (Vide Exhibit P/10) dated 8th of February, 1955 said,
'I have, however, been desired by His Highness, the Raja Brar Bans Bahadur to convey appreciation of your loyal services, that the pension or gratuity whatever is admissible according to rules applicable to the Personal Estates Service be paid to you promptly; that all possible help be rendered to you and that in case of any future vacancies in the Personal Estates due preference be given to the retrenched hands as far as possible'.
2. On 7th of February, 1955, the defendant passed an order which was forwarded to the Controller of the Personal Estates, Faridkot for necessary action. The relevant portion of the order is as under:
'His Highness' Personal Estates,
Faridkot, 7th February, 1955.
We are pleased to order the retirement from service of the undermentioned employee, with effect from the forenoon of 1st Phagan St 2011:
1. S. Bhag Singh Accounts Officer
2. X X X X X X X X X Forwarded to the Controller, H. H's Personal Estates, Faridkot for necessary action. The Pension and Gratuity papers of the retirees be completed as soon as possible'.
3. In the plaint, plaintiff averred that he had served the defendant from 6th of March,1945 to 12th February, 1955 as Class I Gazetted Officer and at the time of his retirement his salary was Rs. 405/-. Though the defendant had ordered prompt payment of plaintiff's pension or gratuity which was admissible under the rules, nothing has been paid to him. The plaintiff consequently instituted a suit for recovery of Rs. 4,140/-. He claimed a sum of Rs. 3,645/-on account of gratuity at the rate of one month's pay for nine years calculated at Rs. 405/- per month. He also claimed a sum of Rs. 405/- as arrears of pay for one month and another sum of Rs. 90/- as grade promotion for six months. He served the defendant as Accountant and Treasury Officer.
4. In his written statement, the defendant averred that at the time of the retirement, the defendant was paying Rs. 390/- per month and his grade promotion had been withheld as per defendant's order dated 4th of August, 1954. IE was also said that there was no agreement entered into between the parties incorporating the terms of service. The defendant pleaded that the payment of gratuity or pension rested within the discretion of the defendant and that the plaintiff could not claim gratuity as a matter of right as this claim was not justiciable.
5. The defendant further claimed as a set-off contending that a sum of Rs. 2,975/9/- out of several sums which had been advanced to the plaintiff had not been accounted for by the latter.
6. The plaintiff in his replication reiterated what was stated by him in the plaint and denied defendant's claim on account of set-off.
7-8 On the pleadings of the parties, the following issues were framed:
(1) Whether the plaintiff is entitled to claim gratuity from the defendant, and iF so, is he entitled to get Rs. 3,645/- as gratuity from the defendant
(2) Whether Rs. 405/- are due to the plaintiff from the defendant as arrears of pay for the month of March 2011 BK?
(3) Whether the defendant is entitled to claim Rs. 2,975.56 nP. as set off against the plaintiff's claim?
(4) Whether the set off claim mentioned in issue No. 3 is within time ?
(5) Whether the plaintiff is entitled to get Rs. 90/- as arrears of pay on grounds of grade promotion for six months from Sawan 2011 BK to Poh 2011 BK?
The trial Court found that the plaintiff was entitled to Rs. 3,510/- by way of gratuity calculated at the rate of Rs. 390/- per month for nine years. He further held that the plaintiffs claim was justiciable by a Court of law. On the second issue, the trial Court held that a sum or Rs. 151/2/- was payable to the plaintiff. This finding is not questioned. On the third issue, the trial Court found that no amount claimed by way of set-off by the defendant was proved to be payable and on the 4th issue it was held that the claim by way of set-off was barred by limitation.
The fifth issue was decided against the plaintiff and it was held that he was not entitled to any grade promotion. This issue has not been pressed by the plaintiff in this appeal. On the above findings, the trial Court decreed the plaintiffs suit for Rs. 3,661.44 nP against the defendant and left the parties to bear their own costs. The defendant filed an appeal and the plaintiff filed cross objections in the Court of the District Judge Bhatinda.
The appeal was dismissed with costs and the cross objections were accepted to the extent that the plaintiff was allowed proportionate costs against the defendant on the amount decreed. The rest of the plaintiff's claim in his cross objections was disallowed.
9. On the first issue, Shri K. C. Puri, learned counsel for the defendant-appellant contended that the claim as to payment of gratuity was not sustainable and for this contention, he relied upon Janki Das v. East Indian Ry. Co., ILR 6 All 634, Natha Gulab and Co. v. W. C. Shaller and G.I.P. Rly. Co., AIR 1924 Bom 88, Secy, of State v. Bhola Nath Mitra, AIR 1933 Cal 409, Secy. of State v. Jamuna Das, AIR 1932 Pat 311. He also referred to an English decision Holloway v. Poplar Corporation, 1940-1 KB 173.
These decisions are to the effect that where bestowal of money is by way of gift depending on the free will of the donor, the payment of the amount cannot be enforced by the donee as a matter of right. The reasoning of this case is that a gratuity given to an employee is in the nature of a gift depending upon the discretion of the person giving and cannot be claimed by the employee as of right. The ratio of these decisions is that where a gratuitous payment is made, no legal right is conferred upon the plaintiff in respect thereof.
10. There is no gainsaying the fact that a gratuity is a payment in the nature of a gift and a donor cannot be compelled to make a gift, the matter being within his sole discretion. Gratuity is an amount paid which does not rest upon a consideration. If a person undertakes to perform for another service or labour for a given sum, any amount paid in excess of that sum not having been based upon a fresh consideration, is a mere gratuity.
In other words, gratuity is not synonymous with compensation. It is also true that a pension which is granted for services previously rendered and which at the time they were rendered, gave rise to no legal obligation, is a gratuity not giving rise to an action. A gratuity is something given freely or without recompense and it cannot be demanded as of right, as it does not involve a return of consideration. Gratuity is voluntarily given by way of favour and as an act of grace.
Gratuity is not founded on any legal liability but is a mere bounty stemming from appreciation and graciousness and, therefore, it is capable of being given or withheld at the discretion of the giver. It is also in certain cases in the nature of an expectancy granted by the donor.
11. What, therefore, matters is not the label but its essential character, in the background of the particular facts and circumstances. Where payment is made as a part of contemplated compensation for services rendered by an employee according to the rules of service in existence at the time of the service, the claim for payment in a Court of law cannot be rejected on the ground that it has been styled as gratuity.
Where an employer promises to the employee to give him a bonus or some other benefit which is conditional upon the doing of an act and the employee does the act, there comes into existence a legally enforceable 'contract'. The distinction between a 'Gratuity' which is not claimable and a 'Contract' which is enforceable depends on the question whether the bestowal of the benefit was conditional or free or in other words where the benefit proposed was compensatory in consideration of the services rendered.
12. In this connection, reference to Exhibit P 11/A is essential. Before the plaintiff joined the service of the defendant, there existed what was called, 'Order No. 1 dated 10-6-1944 by His Highness Raja Sir Harindar Singh Brar Bans Bahadur, Faridkot (Exhibit P 11/A). The relevant portion is as under:--
'Whereas in pursuance of the decisions taken in the course of discussion of the Budget Estimates of the Faridkot State for the Financial Year St: 2001 (1944-45), a demarcation has been made between the Income and Expenditure of the Faridkot State as such and the Income and Expenditure that would be treated as Our Personal. And Whereas it is highly desirable to ensure efficient control and supervision over Our Estates and management of affairs connected with Our Personal Revenue, We are hereby pleased to sanction as follows:--
* * * * ** * * * * Initial appointments and transfers:
All the posts which have been provided in the Personal Budget Estimate of Expenditure for the year St: 2001 will be deemed to have been created with Our sanction and all the incumbents of these posts will be deemed to have been transferred from the State to Our service under Our sanction. New appointments will be governed by the delegation of Powers made under this Far-man.
Rules and Regulations.
The Rules in force in the Faridkot State regarding Leave, T.A., Pensions and Gratuities will be applicable to the employees in Our serivce. The Rules regarding the settlement and disposal of accounts will also be taken as a guide and the Controller will use his discretion in such manner that the settlement and disposal of accounts is not unduly hampered and delayed.'
The above rules were in existence when the plaintiff entered the service of the defendant and it is expressly stated that the rules in force in the Faridkot State regarding pensions and Gratuities etc. will be applicable to the employees in the defendant's service.
13. The matter is left in no doubt whatsoever by letter Exhibit P/10 stating that the pension or Gratuity whatever is admissible according to the rules applicable to the Personal Estates Service would be paid to the plaintiff promptly.
14. The learned counsel for the appellant when referring to Exhibit P 11/A said that the words contained in the last paragraph reproduced above that 'the rules in force in the Faridkot State regarding Leave, T.A., Pensions and Gratuities will be applicable to the employees in Our service' referred to the old employees whose services had been transferred from the Faridkot State and not to the new employees. I do not find anything to support this contention and no distinction between the old and new employees was made or could be intended.
These words cannot be said to exclude employees whose services are engaged after the coming into force of the Rules. If these words were to relate to old employees only, then the defendant would not have addressed letter Exhibit P/10 to the plaintiff saying that according to the rules applicable to the Personal Estates Services, the pension or gratuity should be paid to him promptly.
There is no suggestion whatsoever that persons who are going to be taken subsequently into service are not to enjoy the benefit of the Rules. The penultimate paragraph with the heading 'Initial Appointments and Transfers' does not govern the last paragraph with the heading 'Rules and Regulations'. These two paragraphs are independent and the former in no way governs the latter.
15. Exhibit PT/6 throws a good deal of light on the question whether the subject matter of the claim is by way of right or in the nature of ex gratia payment. These are the Faridkot State Pensions and Gratuity Rules which have been made applicable to the employees in the personal service of the defendant.
16. Rule 1 provides, 'Future good conduct is an implied condition of every grant of a pension. The Darbar reserves to itself the right of withholding or withdrawing a pension or any part of it, if the pensioner be convicted of serious crime or be guilty of gross misconduct'. Thus this rule leaves no discretion with the Darbar except in the two circumstances of the pensioner being convicted of a serious crime or being found guilty of gross misconduct.
17. Rule 4 provides that an officer cannot earn two pensions in the same office at the same time or by the same continuous service. The Use of word 'earn' is significant as it suggests that an officer earns pension and does not receive it as a favour. Chapter IV deals with the conditions of grant of pension and classifies pensions into four categories, viz. (1) Compensation Pension, (2) Invalid Pension, (3) Superannuation Pension and (4) Retiring Pension.
Rule 28 says that a Compensation Pension is awarded to an officer discharged from the State service because, on reduction of establishment, his appointment is abolished and other suitable employment cannot be found for him. The plaintiff is claiming compensation pension under this head. A retiring pension is given to an officer who voluntarily retires after completing qualifying superior service for 30 years.
18. Chapter V has an important bearing and Rules 36 and 37 are quoted below:--
'36. The amount of pension that may be granted is determined by length of service as set forth in the following rules; (fractions of a year are not taken into account in calculation of any pension or gratuity admissible to an officer under this rule).'
'37 The amount of pension is regulated as follows:--
(a) After a service of less than ten years agratuity not exceeding (except in special cases andunder the special orders of the Darbar) onemonth's emoluments for each complete year ofservice.
Note: The term emoluments in this rule means the pay the officer was receiving immediately before his retirement.
(b) After a service of not less than 10 years a pension not exceeding the following amounts:-- *****
19. It will thus appear from Rule 36 above that the grant of the amount of pension is determined by length of service as set forth in the rules and does not depend upon the discretion of the Ruler. Rule 37 draws a distinction between employees who have served for less than 10 years and those who have served for 10 years or more, in the matter of their right to pension. In Rules 36 and 37 the grant is referred to as pension though the word 'gratuity' is also used at one place in Rule 37(a).
To my mind, the farmers were not drawing any distinction between gratuity which was discretionary and pension which is earned. The two words 'pension' and 'gratuity' have been used interchangeably and refer to an amount which has been earned and not which is being received as a favour.
20. At this stage, a reference may be made to a decision of the Supreme Court in State of Bihar v. Abdul Majid, AIR 1954 SC 245 and also to an unreported decision of a Bench of this Court. The Supreme Court held that the rule of English law that a civil servant cannot maintain a suit against the State or Crown for recovery of arrears of salary did not prevail in India as it had been negatived by the provisions of the statute law in this country.
In the unreported case of this Court in Sardar Gurdip Singh v. Union of India, R.F.A. 243 of 1957, the question for decision was whether claim to pension was a legal right and was enforceable in a Court of law. The Bench upheld the contention that the pension, in that case had been earned on account of services having been rendered to the State and the pension in question was to be treated in the same manner as salary as it was not a mere bounty.
Therefore, the right to pension was justiciable and could be enforced through a civil Court. The pension was treated as money earned after serving the State and therefore could not be deemed to be a mere bounty of the State or given as a reward. The pension was treated as due as of right to the retired Government servant. Reliance was also placed on the case of Maya Dutta v. State of Orissa, AIR 1960 Orissa 7.
In that case the widow and children of the deceased Government servant had successfully asserted a right to extraordinary pension to which they were entitled on account of the death of the deceased in an accident brought about by the risk of office. The word 'pension' was held to mean a periodical payment by a Government to a person in consideration of past services, not dependent upon any arbitrary or uncontrolled whim or mere sweet will of the authorities. The right to a pension is equated to a right to salary, both rights being actionable in civil courts.
21. In the case before me, elaborate rules have been framed for earning pensions and as to the conditions which have to be specified for earning. Framing of the rules bearing on pen-sions and detailing of the conditions when pensions become due also suggests that the grant of a pension or a gratuity was not a matter of discretion. The rules relating to pensions are part of the rules of service and the employer cannot be helped to say that the terms of service are liable to waive at his whim or volition.
22. The authorities relied upon by the learned counsel for the petitioner are1 not applicable to the facts of this case. In AIR 1932 Pat 311, the employee was a guard in the service of East Indian Railway and it was the custom of the Railway at the conclusion of the services of their servants to make a gift depending upon the quality of the service rendered by the retiring servant. It was expressly mentioned in the rules published by the Railway for the use of their servants that such gratuity was entirely at the discretion of the Railway and there was no undertaking on the Railway's part that the gratuity would be paid to their servants on their retirement.
23. In AIR 1933 Cal 409, the employee who was claiming gratuity, was in the service of East Indian Railway and had been discharged. According to Rule 1 of the Rules for the grant of gratuities, it was stated that bonuses were to be given at the discretion of the Board of Directors and the Railway Board. The grant of the gratuity in that case was discretionary and was in the nature of a gift, and could not be claimed as of right.
In the other cases referred to by the appellant's counsel, the gratuity claimed was also discretionary payable on compassionate grounds and therefore the plaintiff's claim was rightly considered to be unenforceable. The facts of this case are on an entirely new footing and the sum which is claimed by the plaintiff is in the nature of a right and not a bounty.
24. For the reasons mentioned above, I am of the view that the decision of the Courts below on the first issue was correct and the plaintiff was entitled to claim gratuity amounting to Rs. 3045/-from the defendant in a civil Court. His claim to the above amount was rightly found to have been substantiated on the record.
25-26. The next question is whether the defendant was entitled to claim by way of a set-off a sum of Rs. 2975.56 nP. against the plaintiff and whether the set-off was claimed before the expiration of the period of limitation.
(After going through evidence His Lordship held that on the facts of the case that there was relationship of agent and principal between the plaintiff and the defendant and that the Article applicable was Article 90 of the Limitation Act, His Lordship then proceeded):
The agency in this case was created for specific items and with respect to each one, a separate amount had been received by the plaintiff for a particular purpose. The agency terminated with the conclusion of the particular transaction. The record of this case shows that monies were given to the plaintiff for incurring specific expenses. After the expense had been incurred for the particular purpose for which advance had been made, the particular agency ceased. The agency with respect to every one or these ten items had terminated more than three years prior to the institution, of the suit and therefore the claim of the defendant which has been made by way of set-off is time barred.
27. In view of what has been stated above, defendant's appeal fails and is dismissed with costs.