D.N. Sinha, J.
1. The facts in this case are shortly as follows: The petitioner is a company incorporated under the Indian Companies Act, having its registered office at Calcutta. Its business consists of the manufacture and sale of aluminium utensils, for the manufacture of which it has a factory at Belur in Howrah and at other places. The said factory is commonly known as the 'Crown Aluminium Works.' At all material times prior to about the middle of 1951, the petitioner's issued and subscribed capital was Rs. 36,00,000 divided Into Rs. 3,60,000 ordinary shares of Rs. 10 each, fully paid up. At or about that time, the total assets of the company had a book value of about Rs. 72.00,000. All the shares were held by or on behalf of Aluminium, Limited, a company incorporated in Canada. In the year 1951, the Canadian company sold out all its shares to Indian shareholders, who had to pay the book value of the assets, namely, Rs. 72,00,000. In other words, these shares of the face value of Rs. 36,00,000 were purchased by the Indian shareholders upon actual payment to the Canadian shareholders of Rs. 72,00,000. What was done afterwards was to increase the capital to Rs. 72,00,000 by the issue of bonus shares, to the extent of one share for every share already held. In order to do this, permission had to be obtained from the Controller of Capital Issues, New Delhi, and such consent was given upon the condition that no dividend should be paid for 1951 or any future years until after a reserve of Rs. 14,40,000 had been built up, to replace a portion of the reserves utilized in the capitalization effected by the issue of bonus shares. In accordance with the said condition, the company set aside in reserve a sum of Rs. 8,00,000 out of the profits for the year 1951. For the year ending 31 December 1952, there was a loss of over fourteen lakhs of rupees. For the year ending 31 December 1953, there was a loss of over six lakhs of rupees. Between 1954 and there were profits, but the final position in 1958 was that a net loss of Rs. 1,69,656 had to be carried forward. The result was that in 1958, which is the relevant period for our consideration, not only the reserve of Rs. 8,00,000 was not increased, but was substantially depleted. The position is made clear in the directors' report, dated 18 May Clause (7) and which runs as follows:
In conformity with the requirements of the Companies Act, 1956, the general reserve and the reserve for replacement of fixed capital assets, the two together amounting to Rs. 8,00,001 has been placed against the net deficit of Rs. 1,69,656 and only the net amount of Rs. 6,30,344 has been shown under the head ' reserves and surplus' on the liabilities side, for the purposes of the balance-sheet. However, the necessity still remains to build up a general reserve of Rs. 14,40,000 prescribed by the Central Government in Its order in 1951. The company, has thus, yet to wipe off the net carry forward of losses of Rs. 1,69,656 and add a further sum of Rs. 6,40,000 to the general reserve fund before it can distribute dividends in cash. In respect of this official condition to build up prescribed reserve, your directors expect to try with success to get it relaxed in some measure to speed up prospects of an earlier cash dividend.
2. As a result of this state of affairs, the shareholders have received no dividends since 1951 up to date, upon their investment of Rs. 72,00,000. By an order, dated 10 July 1959, the Government of West Bengal made a reference to the fourth industrial tribunal of West Bengal, respondent 1 herein, of an industrial dispute existing between the 'Crown Aluminium Works, 31, Netaji Subhas Road, Calcutta-1 and their workmen represented by Bengal Aluminium Workers' Union.'
The issue was the question of the payment of gratuity.
3. The said tribunal, after considering the matter, has made an award, dated 26 December 1959, holding that gratuity was payable. The tribunal framed rules for the payment of gratuity. A copy of this award is Ex. J to the petition. This application is directed against the validity of this award.
4. Sri Ginwalla appearing on behalf of the petitioner, has taken several points which are as follows:
The first point taken is that the order of reference is invalid because the employer of the workmen la not Grown Aluminium Works but the petitioner company. Further, there is no such business known as the 'Crown Aluminium Works' as stated above. The Belur factory of the petitioner is commonly known as the 'Crown Aluminium Works.' It is stated, therefore, that the reference was invalid as being a reference between the employees and someone who is not their employer.
The second point taken is that before the order of reference was made, there were certain negotiations between the company and its workmen, and the company offered to make certain payment of gratuity, 'without prejudice.' These negotiations failed. The complaint is that questions were allowed to be put to the witnesses about the negotiations having taken place, although the tribunal disallowed questions relating to the terms of the said negotiations. According to Sri Ginwalla, the tribunal having informed itself that an offer has been made by the petitioner company, became prejudiced and was thus not competent to proceed to hear the reference.
The third point taken is that there are errors of law on the face of the record.
These errors may be specified as follows:
(a) That in awarding gratuity at the end of five years' work, the tribunal violated the principles laid down by the Supreme Court.
(b) That the tribunal erroneously held that the company had now almost reached the position of fully providing for the guaranteed reserves at Rs. 14,40,000 and it is expected that the shareholders would now earn dividends.
(c) That the scheme as framed is on the face of it untenable. While a workman voluntarily retiring or resigning after five years would get fifteen days' basic salary for each completed year of service as gratuity, a workman whose service was terminated by the company after completion of five years' service would get ten days' basic pay for each completed year of service as gratuity, a state of things which is based on no rational standard.
(d) The tribunal noticed certain decisions of the labour tribunal of Bombay, between the company and its workmen at Bombay, but while it followed the award of the original tribunal, it ignored altogether the fact that part of the award had been overruled by the Appellate Tribunal.
With regard to the first point, it is not disputed that the 'Crown Aluminium Works' is merely the name of the factory of the petitioner company, and the intention was to make a reference of adjudication of an industrial dispute existing between the workmen and the petitioner company and not the factory. Now, although strictly speaking, no industrial dispute can exist between a factory and the workmen, this is an error which is not fatal. This point was dealt with in a decision of the Supreme Court--S.K.G. Sugar, Limited v. Industrial Tribunal, Bihar (Ali Hassan, Chairman) 1959--I L.L. J. 420, There also, a reference under Section 10(1) of the Industrial Disputes Act was made of a dispute between a sugar factory owned by a company and its workmen. It was held that what was intended was that the management of the sugar factory, whoever the management may be, would be the party concerned in the reference. That the petitioner company was aware of the reference is not disputed. Indeed the business of the petitioner is known to the world as 'Crown Aluminium Works' and the brand 'Crown Aluminium' is well known in the market as the greatest asset of the petitioner. So, at no time was there any misapprehension in the minds of any person concerned as to who was the employer and who the employee, in connexion with the reference. It further appears that in the industrial adjudication by the omnibus industrial tribunal, resulting in its award passed in 1948, the 'Crown Aluminium Works, Belur' was a party to the reference and the award. This appears from annexure B to the petition. In view of these facts, the first point falls. With regard to the second point, it is true that negotiations were held 'without prejudice' but there is nothing to show that the tribunal ever considered anything as evidence which was made without prejudice. It was argued that before the tribunal, the learned Counsel for the workmen, in course of his argument disclosed the terms of the offer made by the company, which had only been made without prejudice, during negotiations for settlement in respect of the payment of gratuity, whereupon the company filed a petition objecting to the same, a copy whereof is Ex. H to the petition. Unfortunately, in the records of the tribunal there is nothing that indicates that such an objection was taken. The workmen have denied that any such thing happened or any such petition was moved before the tribunal. No such petition is found in the original record produced before me. In any event, it is difficult to understand how the tribunal lost jurisdiction to adjudicate upon the dispute simply because one party disclosed the factum of a negotiation, without disclosing the particulars thereof or even after it did disclose the particulars, there is nothing in the award to show that the tribunal was affected by it. This point is without substance and cannot be accepted. I now come to the third point, namely, the alleged errors which appear on the face of the proceedings. For this purpose, I must refer to the scheme that has been framed and described as 'Rules of gratuity.' The relevant part is as follows:
(i) On the death of an employee, while in the service of the company, or on his becoming physically or mentally incapable of further service, fifteen days' basic wages for each completed year of service, subject to a maximum of fifteen months' basic wages, to be paid to the disabled employee or, if he had died, to his heirs, or legal representatives or assignees or nominees.
(ii) On voluntary retirement or resignation of an employee after five years' continuous service, fifteen days' basic salary or wages for each completed year of service.
(iii) On termination of employee's service by the company--
(a) after completion of service of five years but less than ten years--ten days 'basic pay for each completed year of service....It will thus be seen that after five years' employment a workman may be entitled to gratuity even on voluntary retirement or resignation. This is what has been condemned by the Supreme Court in Express Newspapers (Private), Ltd. and Anr. v. Union of India and Ors. 1961-I L.L.J. 339]. In that case a provision was made for the grant of a gratuity, upon voluntary resignation after three years service. Bhagwati, J., stated as follows:
When we come, however, to the provision in regard to the payment of gratuity to working journalists who voluntarily resigned from services from newspaper establishments, we find that this was a provision which was not at all reasonable. A gratuity is a scheme of retirement benefit and the conditions for its being awarded have been thus laid down in the labour court decisions in this country.
In the case of workmen employed under the Ahmedabad Municipal Corporation v. Ahmedabad Municipal Corporation (1955) L.A.C.155, it was observed at p. 158:The fundamental principle in allowing gratuity is that it is a retirement benefit, for long service, a provision for old age....
5. The learned Judge then proceeded to point out that a gratuity is usually paid upon retirement, but it may also be made payable upon voluntary resignation, and cited the case of Cipla, Ltd. v. Their workmen 1955--II L.L.J. 355 at 358 and the case of Indian Oxygen and Acetylene Co., Ltd. 1956--I L.L.J. 35. He then stated as follows:
It will be noticed from the above that even in those cases where gratuity was allowed on the employee's resignation from the service, it was granted after completion of fifteen years' continuous service and not merely on a minimum of three years' service as in the present case. Gratuity being a reward for good, efficient and faithful service rendered for a considerable period [vide Indian Railway Establishment Code 2, Vol. I at p. 614, Chap. XV, Para. 1503], there would be no justification for awarding the same to an employee who voluntarily resigns and brings about the termination of his service except in exceptional circumstance.
6. One such exception is the operation of what is termed 'the conscience clause' with which so are not concerned in this case. The other exception is whether the employee has been in continuous service of the employer for a period of more than fifteen years. The Supreme Court went so far as to hold that awarding a gratuity after voluntary resignation from service for a period of three years, was an unreasonable restriction on the fundamental right of the employer to carry on business, and was to be struck down as being unconstitutional. It is important to point out that in the case of this particular company, an industrial dispute arose between itself and its workmen at Bombay and there was a reference for adjudication on the question of payment of gratuity. In the gratuity scheme which was framed by the Bombay tribunal, gratuity was allowed on the termination of service by the company after five years' continuous service, but in the case of voluntary retirement or resignation, only after fifteen years' continuous service. Sri Sen Gupta has himself drawn my attention to another decision of the Supreme Court--Indian Hume Pipe Co., Ltd. v. Its workmen and Anr. 1959--II L.L.J. 830. There also, the gratuity was payable upon voluntary retirement or resignation from service after fifteen years' continuous service.
7. It is, therefore, clear to me that on the principles adumbrated above, a gratuity cannot be made payable upon voluntary retirement or resignation after being in service of the employer only for a period of five years. This is wholly repugnant to the entire conception of gratuity, which is nothing but a retirement benefit after many years of service. This alone is sufficient for setting aside the whole scheme, because where an entire scheme has been drawn up, it would be impossible to strike out apart of it. I do not know how the scheme would have shaped, If the tribunal knew that a part of it was erroneously framed. The next error that is manifest is the error regarding the reserve. I have already mentioned above the fact that the Indian shareholders having taken over the company in 1651 from the Canadian shareholders, certain bonus shares were issued. This issue was made conditional upon the setting apart of a reserve capital of Rs. 14,40,000 before which no dividend could be paid. Indeed, for a period of over ten years no dividend had been paid because the stipulated reserve could not be reached. The position in 1958 is clear from the balance-sheet, and the report of the directors mentioned above. It clearly appears that in 1958, instead of the reserve of Rs. 8,00,000 being supplemented, it was in fact reduced. That this is a fact is not disputed before me. What Sri Sen Gupta argues is that the company was making profits from year to year, and the tribunal must have thought that there would be no difficulty In making up the deficit. This, however, is not what the tribunal states in its award. What it states is as follows:
The company has now almost reached the position of fully providing for the guaranteed reserve at Rs. 14,40,000 and it is expected that the shareholders would now earn dividends.
8. This is a statement which shows that the tribunal had entirely misconceived the position. Not only had the requisite reserve not been reached or nearly reached, but it had in fact diminished in 1958, which is the relevant year, by over a lakh of rupees. Now, It may be argued that this is an error of fact. While primarily it is an error of fact, it becomes an error of law as well, because it has been held that one of the factors to be taken into account in awarding gratuity is the maintenance of the reserve. This appears from the decision of the Supreme Court in Express Newspapers (Private), Ltd. and Anr. v. Union of India and Ors. 1931--I L.L.J. 339 where Bhagwati, J., relied upon and quoted a paragraph from the decision of the Labour Appellate Tribunal, Madras, in the case of Indian Oxygen Acetylene Co. Ltd. 1956--I L.L.J. 35 (supra) where it was observed as follows:
It is now well settled by a series of decisions of the Appellate Tribunal that where an employer company has the financial capacity, the workmen will be entitled to the benefit of gratuity in addition to the benefits of the provident fund. In considering the financial capacity of the concern, what has to be seen is the general financial stability of the concern. The factors to be considered before granting a scheme of gratuity are the broad aspects of the financial condition of the concerns, its profits earned in the past, its reserve and the possibility of replenishing the reserve....
9. We therefore find that one of the factors to be considered in deciding the question as to whether gratuity is to be payable or not, 1B the question of reserve, and the possibility of replenishing the same. Therefore, the question of reserve and the replenishment of the same become questions of law, although they may be based on facts. An error made in this respect is not merely an error of fact but vitiates the whole legal position as to the rights and liabilities of the parties and therefore must be deemed to be also an error of law. I do not know how this manifest error crept into the award. But the result is that a factor has been held to he present which is not present. Therefore, if the correct facts had been present in the minds of the tribunal, it may have held that an important factor justifying the payment of gratuity at the particular time when it was making its award, did not exist or was destructive of the award of such payment. For all we know, the tribunal might not have at all directed gratuity to be paid, or would have announced a scheme which was less rigorous from the point of view of the employer. I now come to the scheme which has actually been framed. It will be found that from the scheme it appears that a workman on voluntary retirement or resignation after five years would get a gratuity calculated at fifteen days' basic salary or wages for each completed year of service. But if the same employee's service la terminated by the company, then he would get gratuity at the rate of ten days* basic pay for each completed year of service. This seems to be founded on no rational basis. One could understand a higher rate of gratuity being provided for, if the company terminated the service of the employee without his fault. But where, after a short period of five years, the workman himself spurns the services of the company, perhaps to migrate to a more generous employer) there can be no meaning in allowing him a higher rate of gratuity. Sri Sen Gupta tries to support this by saying that in the case of termination of his services, a workman gets retrenchment compensation, and that is why the rate of gratuity has been made less. That, however, is not what the tribunal has said, and it does not appear to be the scheme of the award. For example, under item (iii), we find that the greater the period of service, the more is the quantum of gratuity. If it was linked with retrenchment compensation, this would not have been so. In such a case, the greater the period of service, the higher would be the retrenchment compensation, and consequently the rate of gratuity would have been lower. That, however, is not the case. It is clear, therefore, that the tribunal did not have in its mind the question of retrenchment compensation while framing the scheme for gratuity. Lastly, I come to the question of the award in the reference at Bombay. What had happened was that between the same company and its workmen at Bombay, there was a reference for adjudication. The industrial tribunal made an award. But so far as the clerical establishment was concerned, the Appellate Tribunal decided that no gratuity would be payable because of the financial circumstances of the company. What is complained of is that, while the tribunal has noticed the award of the original tribunal, the award of the Appellate Tribunal has been ignored. The complaint is that according to the Appellate Tribunal, the financial condition of the company did not Justify an award of gratuity, while the tribunal here has held that the financial condition does justify payment of gratuity. Now, had the matter rested merely upon this point, I would not have interfered, because the consideration of the question as to whether the company in Calcutta was financially sound or not, should under normal circumstances be left to be dealt with by the industrial tribunal at Calcutta. In the case of a payment of gratuity, a broad based view has to be taken, of the financial circumstances of the employer. Not only the present position has to be considered but the future prospect. I am not basing my decision on a criticism of what the tribunal has held as to the financial prospects of the company. As I have shown above, the tribunal has made a mistake in its approach to the question of awarding gratuity. It has failed to realize the nature of gratuity, and has ordered the payment of gratuity even on voluntary retirement or resignation after five years, and although the reserves of the company are still depleted, with the result that the shareholders, who bad parted with Rs. 72,00,000, have not got dividends for more than ten years. These are serious errors of law, which appear on the face of the record, and for the reasons aforesaid, the scheme itself cannot be allowed to stand. As I have pointed out, it is not possible for me to modify the scheme. I do not know in what way the scheme would have emerged if the tribunal had followed the provisions of law accurately.
10. The result is that this rule is made absolute and a writ in the nature of certiorari is issued quashing the award of the fourth industrial tribunal, dated 26 December 1959. There will be no order as to costs.