P L D 1975 Supreme Court 306 (PLP)

(iii) It is conceded in the concise statement of the Official Liquidator that the "appellant No. 1 remained in service from January 1943 to 22nd December 1959, i.e., 17 complete years and Taj Muhammad appellant No. 2 remained in service from January 1944 to 22nd December 1959, i.e. 16 complete years." The Official Liquidator, however, maintains that both the gratuity rules, namely, the one circulated by the Head Office on 10‑7‑1948 (Exh. P.W. 1/2) and that which was introduced as a result of the Bombay Award on r 9th January 1951 (Exh. P.W. 1/3f have to be read together, for, the second is only an amendment of the first. The first set of rules opens with the following words:‑ "In order to recognize employees' satisfactory and meritorious service the authorities are pleased to announce that gratuity on tit following scales will be paid to the employees." It follows from the above that gratuity cannot be paid unless the service is satisfactory and meritorious, and since there is nothing on the record of the Official Liquidator to show that the services of the appellants were ever recognized as such, they are not entitled to gratuity merely on the ground of continuous employment in service and earning usual increments. Even the earning of usual increments cannot, in any way, be equated with the requirement of recognizing service as satisfactory and meritorious. According to the Official Liquidator, in order to be entitled to the gratuity, it must be shown that a conscious determination on the hart of the employer had been made to the effect that the service of the employee was satisfactory and meritorious. In any event, it is contended that the Bombay Award (Exh. P.W. 1/3) cannot apply to the appellants, because, their services were not terminated by the bank at any stage. They stood automatically discharged by operation of law under section 172 of the Companies Act. Lastly, it is contended that they were certainly not entitled to any preferential right under section 230 of the Companies Act, for, the amount was neither due within the meaning of the said section nor did the bank ever maintain any such "gratuity fund" in order to attract the provisions of clause (e) of subsection (1) of section

230. The appellant, on the other hand, contends that the Bombay Award supersedes the Office Circular of the 10th July. 1948, sq. by its very terms, it clearly indicates that the said Office Circular could no longer be made applicable. In any event, this was an Award by a tribunal which must prevail over the Office Circular. It is also urged that even the Official Liquidator has adopted the said Bombay Award in the cases of other banks which were ordered to be wound up in Pakistan and had itself as Official Liquidator of the said banks paid gratuity to their employees in accordance with the said award. The learned counsel appearing for the Official Liquidator has, at our request now produced a copy of the Bombay Award which was published by the Government of India on the 26th March 1953. On examining the Award, we find that the question raised before the All‑India Industrial tribunal (Bank Disputes) was inter alia, whether gratuity should be compulsory or ex gratia and the tribunal came to the following conclusion:‑ "Like bonus, a claim for gratuity also can no longer be regarded as a mere reward or pure ex gratis payment. It is given in order to make labour contented and forms part of the total emoluments of the workers for their service . . . . We hold accordingly that there should be no forfeiture of gratuity even for dismissal on account of misconduct except in cases where such misconduct causes financial loss to the Company and in that case to that extent only." Then it went on to prescribe the scales of payment for banks classified 7 to various Group. The scales prescribed for banks is Group 'B' in which the Bharat Bank fell, were as given in the Exh. P. W. 1/3. This reads as follows: "In terms of the Bombay Award the existing gratuity rules are amended as follows and are applicable to the entire staff including Officers: (1) On the death of an employee while in the service of Bank, one month's pay for each year of service, subject to a maximum of 12 months to be paid to his heirs, executors, assignees or nominees. (2) On the employee becoming physically or mentally disabled to continue further in service or on termination of service by the Bank after 10 years' continuous service gratuity at the same rate as above. (3) On voluntary retirement, or resignation of an employee after 15 years' continuous service, gratuity at the same rate as above. (Sd.) Ram Sahai Bahal, Manager, Head Office." It would appear from the above that the question of satisfactory or meritorious service cannot possibly arise under the terms of the above quoted award which, it appears, was accepted by the Bharat Bank and circulated by its Head Office to its various branches by Circular No. H. O./Eat/259 dated 9th January 1951. All that is required, under Paragraph 2 of this award is that if the service of an employee is terminated by the bank after 10 year' continuous service he should be paid the gratuity. The only criterion for the payment of gratuity thus is ten years' continuous service in the case of termination of service and 15 years continuous service in the case of retirement or resignation of the employee concerned. We are, therefore, unable to accept the contention that the terms of Exh. P.W. 1/3 were subject to, and controlled by, the terms of Exh. P.W. 1/2. In the light of the Bombay Award, from which we have quoted earlier, it is clear that the interpretation sought to be put on its terms would result in entirely defeating the award itself and rendering it nugatory. This cannot be done. The next question that arises is as to whether the appellants, who had admittedly put in more than 15 years' continuous service, were entitled to the gratuity? Learned Advocate for the Official Liquidator has contended that since subsection (3) of section 172 of the Companies Act says that "such order shall be deemed to be notice of discharge of the servants of the Company, except when the business of the Company is continued", there has been no "termination" or "retirement" or "resignation" to attract the provisions of Exh P W 1/3, because, discharge is not equivalent to termination of service. We find it difficult to accept such an interpretation. Discharge, according to its dictionary meaning, means to "dismiss" or "remove from employment". It has, therefore, the same effect as the termination of service and cannot be regarded as something different therefrom. We are of the opinion, therefore, that the services of the appellants stood terminated by operation of law with effect from the date of the winding up of the bank and they were entitled to the payment of gratuity, it they had put in more than ten years' continuous service, at the rate of one month's pay for each year of service subject to a maximum of 12 months, in term of Exh. P. W. 1/3. The next question that has to be considered is as to whether this claim could be treated as a preferential claim under section 230 of the Companies Act? In winding up by, or subject to the supervision of the Court, tire Official Liquidator has, under section 228, to prepare and get settled by the Court a list of all creditors of the Company, present or future, certain or contingent and all persons having such claims against the Company are entitled to prove their claims in the winding up. Out of these creditors, some are to be given a preferential treatment under section 230 and their debts are to be paid in priority over all other debts. In this category, among others, come those mentioned in clause (e) of subsection (

11. This clause reads as follows:‑ "(e) All sums due to an employee from a Provident fund, a Gratuity Fund or any other fund for the welfare of the employees maintained by the Company." The categories of debts to which priority is being given would thus indicate that they are debts payable out of some special fund earmarked for a particular purpose and, therefore, payments out of that fund have to be made on a priority basis treating the Company as a trustee of that fund. It is clear from clause (e) above that in order to be entitled to be paid in priority to all otter debts, one had to show that there was a "gratuity fund" being maintained by the Company. In the present case, there is no evidence to show that any such gratuity fund was maintained. In fact, the appellant No. 1 has himself conceded that there was no gratuity fund so far as Pakistan was concerned. In the circumstances, the question of the admission of his claim on any priority basis under section 230 of tire Companies Act does not arise. But this does not mean that the appellants cannot prove their claims in the winding‑up even as ordinary creditors. They should have a chance of proving their claims under section 228 of the Companies Act and getting whatever is available in the winding‑up out of such assets of the Company as are left after meeting the claims of the, preferential creditors under section 230 of the said Act. Learned counsel for the Official Liquidator has further contended that even on the basis of the Bombay Award the appellant No. 1 is not entitled to his claim, because, his misconduct, as subsequently found, actually caused loss to the Company. In this connection, he has referred us to a subsequent order of the Liquidation Judge passed on the 26th January 1967, on an application by the Official Liquidator under section 235 of the Companies Act for misfeasance against the appellant No. 1 on account of misapplication of funds belonging to the bank. It is true that in this order, the learned Judge found that the appellant No. 1 was liable to make good a sum of Rs. 3,000 to the Official Liquidator, That the expenditure by him o Rs. 953‑4‑1 which was lying as cash in his hand on the date of winding‑up was wholly unauthorised and that a sum of Rs. 5,000 received by him on the 22nd December 1959 (date of the winding up order) was not spent "except to the extent that the salary and arrears were dire to the employees as held in their claims". The details of this were to be left to be worked out by the Official Liquidator and placed before the Court on a subsequent date. We have not been told as to whether any appeal has been filed by the appellant against the order of the Liquidation Judge. It is also not known as ‑to whether any amount has been determined as the liability of the said appellant Not, but, if the Liquidation Judge of the High Court finds any sum to have been misapplied by the said appellant, such amount will have to ire adjusted against the claim of the said appellant, because, even under the Bombay Award, where the misconduct has caused financial loss to the Company, forfeiture of the gratuity can be justifiably made to that extent. Lastly, learned counsel appearing for the Official Liquidator has contended that the amount claimed is grossly exaggerated, as the salary of the appellant No. 1 was only Rs. 240 a month and not Rs. 400 as claimed by him and that of appellant No. 2 was Rs. 60 a month and not Rs. 100 as claimed by him. The records of the proceedings before the Company Judge, Lahore High Court, as per information now furnished by the learned Advocate‑on‑record for the Official Liquidator, however, reveal that in December 1959, the last pay drawn by the appellants were Rs. 400 and Rs. 100 respectively. We accept these figures and order that the gratuities payable to them shall be calculated on that basis. They both will be entitled to 12 months' pay as such gratuity. In the case of appellant No. 1, however, this will be subject to adjustment of any amount found to be due from him by the Liquidation Judge in the misfeasance proceedings. The appeals are accordingly, allowed to the extent indicated above but since success is divided there will be no order as to costs. K. B. A. Appeal partly accepted.