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Judgment
Anand Byrareddy
Heard the learned counsel for the petitioners and the learned Senior Advocate Shri Udaya Holla, appearing for the counsel for the respondents.
The only issue that arises for consideration in the present petition is, whether the petitioners are entitled to claim ex-gratia payment on the revised salary subsequent to their retirement from service and after they have been paid ex-gratia on the basis of the pre-revised salary. This was a question that was addressed at length in WP 11090/2006 and connected cases in the case of K. Ajithirnar Gadiyar vs. Corporation Bank, dated 10.8.2011, wherein identical contentions were raised and it was disposed of inter alia holding as follows:-
In addressing the question arising for consideration, the definition of ex gratia as found in the several Dictionaries, can be usefully noted:-
According to Jowitt''s Dictionary of English Law. Second Edition, ''ex gratia'' is defined as follows:-
Ex gratia (as of favor) in contra-distinction to "as of right". As to the liability to tax of an ex gratia payment.
A Dictionary of Latin Words and Phrases, by James Morwood, defines ''ex gratia'' as follows:
ex gratia - done or given as a favor and not under any compulsion
Words and Phrases, Permanent Edition, contains the following definition:
Ex gratia payment
Where there is concurrency of coverage between ceding company''s policy and policy of reinsurance, the follow the settlements doctrine imposes upon reinsurer a contractual obligation to indemnify the ceding company for payments it makes pursuant to loss settlement under its own policy, provided that loss settlement is not fraudulent, collusive, or otherwise made in bad faith, and is not "ex gratia payment", which is one that is made by one who recognizes no legal obligation to pay but who makes payment to avoid later expenses as in case of settlement by insurance company to avoid costs of suit.
According to Advanced Law Lexicon, Third Edition, by P. Ramanatha Aiyar:
Ex gratia. By favor.
Out of grace; as a mattes of grace, favor, or indulgence; gratuitous. A term applied to anything accorded as a favor; as distinguished from that which may be demanded ex debito as matter of right.
The words "ex gratia" in a promise to pay do not carry a accessary or even probable implication that the agreement its to be without legal effect.
As matter of grace or favor.
Describing a payment made in thanks, such as a rip or golden handshake payment to a retiring employee. Most ex-gratia payments are tax free.
Ex gratia payment. Payment made by one who recognizes no legal obligation to pay but who makes payment to avoid greater expense as in the case of a settlement by an insurance company to avoid costs of suit. A payment without legal consideration.
In insurance, a payment made to settle an issue (such as an insurance claim) but without admitting liability, (Insurance)
Ex gratia pension. A pension paid by an employer although there is no binding commitment to do so. (Investment)
According to Webster''s Third New International Dictionary,
ex gratia - as a favor; not compelled by legal right (ex gratia pension payments)
Concise -Oxford English Dictionary defines ''ex gratia'' as follows-
ex gratia - (with reference to payment) done from a sense of moral obligation rather than because of any legal requirement.
According to Black''s Law Dictionary, Sixth Edition., ''ex gratia'' is,
Ex gratia. Out of grace; as a matter of grace, favor of indulgence; gratuitous. A term applied to anything accorded as a favor; as distinguished from that which may be demanded ex debito, as a matter of right.
Ex gratia payment. Payment made by one who recognises no legal obligation to pay but who rnakes payment to avoid greater expense as in the ease of a settlement by an insurance company to avoid costs of suit. A payment without legal consideration.
In the case of Vayitri Plantations Ltd. Vs. Babu Mathew, , a Division Bench of the High Court of Kerala, while considering the question whether ex-gratia payment would be remuneration, had addressed the definition "wages" and drew support from the decision of the Supreme Court in the case of Braithwaite and Co. (India) Ltd. Vs. The Employees'' State Insurance Corporation, to hold as follows:-
A question analogous to an ''ex-gratia'' payment with which we art concerned in the present case, arose in Braithwaite and Co. (India) Ltd. Vs. The Employees'' State Insurance Corporation, . That was, no doubt, a case under the Employees State Insurance Act, 1948, and the main part or first part of the definition of ''wages'' in S. 2(22) of that Act reads as follows:
S 2(22): ''wages'' means all remuneration paid or payable in cash to an employee, if the terms of contract of employment, express or implied, were fulfilled.
It is seen that the main pari or first part of S. 2(22) is substantially similar to the main part or first part of S. 2(rr) of the I.D. Act, 1947, at any rate, so far as the words ''all remuneration'', ''if the terms of employment, express or implied, were fulfilled,'' are concerned.
In Braithwaile''s case, the question was whether the payment of an ''inam'' which was not one of the original terms of the contract of employment, but which was proposed by the employer, long thereafter on December 28, 1955, was ''wages'', within the main part or first part in S. 2(22) of the E.S.I. Act. It was held that it was not ''wages'' The E.S.I. Corporation contended that the (inam was ''wages'' within the main or first part of S. 2(22) of that Act being ''all remunerations paid or payable in cash to an employee, if the terms of the contract of employment, express or implied, were fulfilled''. The E.S.I. Corporation did not rely upon any part of the inclusive part of the definition nor did the company rely on the exclusionary pan of the definition. The High Court accepted the plea of the E.S.I. Corporation. The Supreme Court reversed the judgment of the High. Court and held that the ''Inam'' did not come within the main or first part of the definition in S. 2(22) of that Act which substantially conforms to the main or first part of S. 2(rr) in the I.D. Act, 1947. The High Court there held that the ''inam'' had become an implied term of the contract of employment.
The Supreme Court analysed the features of the ''Inam'' scheme. Firstly, the Inam was not part of the original contract of employment. In the original contract, there was no offer to give any reward of prize. Secondly, when later, the incentive or inam scheme was introduced and certain special conditions were introduced, the scheme itself reserved the right to withdraw (sic) altogether without assigning any reason or to revise its conditions as its sole discretion. Thirdly, the inam is not payable if the targets were not achieved due to lack of orders, lack of materials, breakdown of machinery, lack of labour, strikes, lock-outs, go-slow or any other reason whatsoever. Fourthly, if there was any deterioration in the workmanship on the part of the employee, the scheme could be abandoned forthwith. Fifthly, it was made clear that this payment of reward was in no way connected with nor was part of wages. Therefore, the, Supreme Court held that the ''inam'' was neither an express nor or implied term of the contract. The Supreme Court also observed, referring to Bala Sabsatmanya Rajaram v, B.C. Patil AIR 1958 SC 5/8, a case arising under the Payment of Wages Act, wherein the main part of the definition of ''wages'' was similar.
A Division Bench of Orissa High Court in the case of Manorama Rath vs. Orissa Mining Corporation Limited, 2002 LAB I.C. 3377, in an identical situation, as in the present case on hand, while referring to the relevant clause under the Voluntary Retirement Scheme that was involved in that case, providing for payment of ex gratia field that such a clause cannot give an extended meaning to the expression that last drawn monthly salary to mean the revised pay and could only refer to the pay existing at the time of acceptance of voluntary retirement and other amounts contemplated and held as follows:-
........The object of voluntary retirement is to give an option to the employee to retire before his/her date of superannuation by receiving an ex gratia payment as well as an option to the Corporation either to accept or not to accept such option: for voluntary retirement exercised by an employee. Obviously, the Corporation has to work out the financial implications of accepting the option exercised by a particular employee for voluntary retirement before it decides to accept or not to accept such option exercised by an employee for voluntary retirement. for working out such financial implications, the pay as existing at the time of acceptance of the option of the employee for voluntary retirement + DA. + any other amount paid towards interim benefits can he taken into account and not the revised pay which may accrue to the employee on account of pay revision subsequent to acceptance of the option of the employee for voluntary retirement by the competent authority of the Corporation. Thus, neither the language not the object of paragraph -5 (i) supports the contention of Mr. Rath that the revised pay of the petitioner effective from 1-1-1996 will have to be taken into consideration for making out the ex gratia payment under paragraph - 5 (1) under the scheme for voluntary retirement of the Corporation. Similarly, the language of paragraph - 5 (vi) of the scheme for voluntary retirement of the Corporation would show that one months salary in lieu of one month notice can he paid to the employee by the Corporation and for working out the financial implications, it will have to take into consideration the basic pay of the employee at the time of accepting his option for voluntary retirement + D.A. + interim benefit and not the pay as may be revised subsequent to the acceptance of option of the employee for voluntary retirement. The contention of Mr. Rath that one months salary in lieu of one month notice in paragraph -5 (vi) of the scheme for voluntary retirement of the Corporation would mean revised pay effective from 1-1-1996, therefore, does not find support from either, the language or the object of paragraphs (vi) of the scheme for voluntary retirement of the Corporation.
The contention of Mr. Rath that the petitioner has been paid the gratuity, leave encashment and Contributory Provident Fund calculated on the basis of his revised pay effective from 1-1-1996 and the Corporation cannot now take a different stand for the purpose of calculating the exgratia payment and. the one months salary under paragraphs-5 (i) and 5 (vi) of the scheme for voluntary retirement of the Corporation also has no merit. Gratuity, leave encashment and Contributory Provident Fund have to be calculated in accordance with the provisions of the Act or the Rules under which such gratuity, leave encashment and Contributory provident Fund are to be paid whereas the exgratia payment of one month''s salary in lieu of one month are payable in accordance with the provisions in paragraphs-5 (i) and 5 (vi) of the scheme for voluntary retirement of the Corporation and if the said provisions in paragraphs-5 (i) and 5 (vi) of the scheme for voluntary retirement of the Corporation do not permit calculation of exgratia payment and one month''s salary in lieu of one month an the basis of revised pay of the petitioner effective from 1-1-1996, the petitioner cannot be paid such exgratia payment and one month''s salary in lieu of one month''s notice on the basis of such revised pay effective from 1-1-1996.
In A.K. Bindal vs. Union of India, supra, while deriving that an employee could claim enhanced salary by virtue of retrospective revision of pay, after having opted for voluntary retirement has held as follows;
The Voluntary Retirement Scheme (VRS) which is some times called Voluntary Separation Scheme (VSS) is introduced by companies and industrial establishments in order to reduce the surplus staff and to bring in financial efficiency. The Office Memorandum dated 5.5.2000 issued by Government of India provided that for sick and unviable units, the VRS package of Department of heavy Industry will be adopted. Under this Scheme an employee is entitled to an ex-gratia payment equivalent to 45 days emoluments (pay + D.A.) for each completed year of service or the monthly emoluments at the time of retirement multiplied by the balance months of service left before the normal date of retirement, whichever is less. This is in addition to terminal benefits. The Government was conscious about the fact that the pay scales of some of the PSUs had not been revised with effect from 1.1.1992 and therefore it has provided adequate compensation in that regard in the second VRS which was announced for all Central Public Sector undertakings on 6-11-2001. Clause (a) of the scheme reads as under;
(a) Ex gratia payment in respect of employees on pay scales at 1-1-87 and 1-1-92 levels, computed on their existing pay scales in accordance with the extant scheme, shall be increased by 100 % and 50 % respectively.
This shows that a considerable amount is to be paid to an employee ex gratia besides the terminal benefits in case he opts for voluntary retirement under the Scheme and his option is accepted. The amount is paid not for doing any work or rendering any service. It is paid in lieu of the employee himself leaving the services of the company or the industrial establishment and forgoing all his claims or rights in the same. It is a package deal of give and take That is why in business world it is known as ''Golden Handshake ''. The main purpose of paying this amount is to bring about a complete cessation of the jural relationship between the employer and the employee. After the amount is paid and the employee ceases to be under the employment of the company or the undertaking, he leaves with all his rights and there is no question.of his again agitating for any kind of his past nights, with his erstwhile employer including making any claim with regard to enhancement, of pay scale for an earlier period. If the employee is. still permitted to raise a grievance regarding enhancement of pay scale from a retrospective date, even after he has opted for Voluntary Retirement Scheme and has accepted the amount paid to him the whole purpose of introducing the Scheme would be totally-frustrated.
The contention that the employees opted for VRS under any kind of compulsion is not worthy of acceptance. The petitioners are officers of the two companies and are mature enough to weigh the pros and eons of the options which were available to them. They could have waited and pursued their claim for revision of pay scale without opting for voluntary retirement scheme However they, in their wisdom thought that in the fact situation VRS was a better option available and chose the same. After having applied for VRS and taken the money it is not open to them to contend that they exercised the option under any kind of compulsion. In view of the fact that nearly ninety nine per cent of employees have availed of the VRS Scheme and have left the companies (FCI and HFC), the writ petition no longer survives and has become in fructuous.
The above has been followed in a later judgment of the Supreme Court in the case of HFC Voluntary Retired Employees Welfare Association, supra.
In Ghaziabad Zila Sahakari Bank Limited vs. Labour Commissioner, 2007 2 SCC 756, the nature of ex gratia payment was expressed to be as hereunder:-
In the instant case, the Additional Labour Commissioner allowed the payment as an ex gratia payment to the employees of the Cooperative Bank form the. public fund. The meaning of the word "bonus" according to the New English Dictionary is a boon or gift, over and above, what is normally due as remuneration to be received. This imports the concept of some ex gratia Payment. It was ex gratita payment on account of which it is not possible to employ a term of service on the basis of employment contract, In our view the payment made as ex gratia payment would not constitute any precedent for future years. The ex gratia payment made in the instant ease was neither in the nature of production bonus nor incentive bonus nor customary nor any statutory bonus. It cannot be regarded as part of the contract "employment''''. Therefore, the ex gratia payment made by the Bank cannot be regarded as remuneration paid or payable to the employees in fulfillment of the terms of the contrast of employment within the meaning of definition u/s 2(rr) of the Industrial. Disputes Act. 1947.
In the light of the above authorities, it was held that the nature of ex-gratia payment evidently indicated that, but for the voluntary retirement scheme, there was no obligation on the part of the respondent - bank to make any such payment. It therefore could not be said that it could be claimed as a matter of right insofar as the revised salary was concerned and only on the basis of the fact that such revision of pay had been given with retrospective effect and therefore, it should be applied in calculating ex-gratia payment made as on the date of voluntary retirement. It is clear from the decided eases that even the revision of salary with retrospective effect could not be claimed as a matter of right by the petitioner if not for an agreement between the employer and the petitioner. Further, as there was no jural relationship subsisting between the petitioners and their employer, it was only by virtue of the agreement that the respondent was compelled to pay the difference in arrears to the petitioner. Therefore, if the arrears in relation to the ex-gratia payment had also been addressed and agreed upon, as in the case of the arrears of revised salary, it may have been possible for the petitioners to assert that notwithstanding that ex-gratia payment is made as a matter of favor and not out of any legal obligation, it could still be enforced as has been done in a decided case referred to here in above. In the absence of which, it cannot be said that either under the Statute or under Contract, there was an enforceable right to claim the difference in ex-gratia payment on the basis of the revised salary.
In that view of the matter the petition stands dismissed.