SUDHIR CHANDR, A SARKAR

--:rATA IRON & STEE_L CO. LTP .. AND OTHERS.

March 27, 1984

(D.A DESAI, A .. P. SEN ANQ V. 'BALAKRTS r.-; A ERADI, JJ.]

Rttirlng Gratuity Rults, I9J7-Rule /(g)-Definition of 'Retirtmtllt' scop~ of -Empluytt after y; orklttg fur 29 years left service by reslgl!ation which .;01 arce,_ udbyemplo)'U-Whtthn employee cotJid be said to hav~ rttittdfrom :ervice. ·

 1/ttlring Gratuity Rules, 1937-Ru/e 10 validity of. Part af Rule 10 which fNiftrs abso/JJre diScretion 011 tmplvyer to pay gratuity, even of it is earned, at il.r dJJOiute discretion, u inefftcrive am/ enfurceab/e,

InJ.strial Employment (Standing Orders) Act, 1946-Sation 3--Certi/ieJ !ilrl!llling Ordtrs-:Nawr' of-Whther form parr of contract of suvice-IVherflu flotlr brtarlo can be rtpaired b) civil suit.

 Words and Plorases-''Gmtuity"-Concept of. Gratuity is a retirul benefit a1 ""as11re of social seatrity ; it Is not lfrttlrlitous but has to be eumed by lo>nz N .Lontinuout sen•il't; il can be rc., vt!red Jlrrough ciril Juit.

lbe app:llant .,..ho ro, igned from service of the: respondent company after '<'tvinc for o•er 29 years wu• not paid retiring grntl, lity by the respondnt, even ., hen the appclbnt had become elil!ible. for it unJer the relevant gmmity ruloos 111tltd as tbe RetiriOII: Gratuity Rules. J9J7 \Grtuity Rules for short). Tbo . •PP<llantlilcd a 'uit in the Court of Subordinate Jutlge for recovering tbe

"mount of Voltuity. The Subordinate JuJgc decreed the suit. The High Court . allowed tilt app:al f1led by the rc, pondent. Hence this appeal. The respoo. • . dent• submitted; (I) that since the appo:llant did not retire from the service but

~It the ICnu by resining the po!l, he was not eligible for gratuity untler

ult 6 or the Retiring Gr11tuity Rules, t 937 ; l2) that uoJer Rule 10 the ..:tiring . :atu!!y wu payable Mt the absolute discretion or tho responent and rol\ld not

t claoacd •• a matter or right by the appellant even if he had become clisiblo

or~ ; and (JJ thut claim to aratuity could not be enforced in the dvil rourt.

. Allu., inathc appca I,

. H£Lo : Rule 6(a) which preribcd the eligibility criterion f<>r p:~.yment gf lfllrlllJ . cratUJy pmvidcs, f/11ter ulla, that every permanent uncovenanted em of tbe Comtany, will be elivible tor rdirinll Qratulty • . The expression ttlremcnt• h ... __ I . . r . by . as uocn defined in Rule l(a) to mean 'I ld ternunat1oo o serviCe ll ~<:owq. or any cau~ other then rcmovul by dhdlDrge due to misconduct'.

ii!Jnott<4 thQt the appellant wu permanent uncovenan; ed :mployee or

1.f i\ A 'f , j .i

...

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SUPREME COURT REPORTS [l9S4j 3 S C . it. . . .. . . .. . ihe Company paid on monthly basis and he redercd sc, rvicc for over~ Y•• and his srvice came to an end by rea<on of hts tcndcnng resignation V.hit~ was unconditionally aa:cpted. II Is. not suggested that he was romovcd I> discharge due to misconduct. un.questJonabl~. therefore, the appellant h: within the meaning of the cxprcsston, thus .r•t•_red r"'IJ'l service of the '"llOo: . dent and he is qualified .for payment of gr.ttutty to terms of Ru!c 6. [Jl2D.f] .

According to the High Court, ihc , service conditions of the apP<ilant,,;,;~ gavemed by !he Works Standing Orders or the rc~ondcnt. No C<Ctption h" . be•n taken to this finding. These Wqrks Standtn~; Orders were framed •n~

certified under the Industrial Employment (Standing Order:;) Act, 1946. n ..

Act wu 8 kgi.slatlvc response to the /abJ~Z [airt rule or hire and fire ot sweet . will. It w3s an auempt at intposing statu(Ory comrac:t of'service b¢twcn tv."Oparties unequal io negotiate, on the footing of equ3 1 ity. The intendment .. j ·.·.· underlyini the Act and the provi•ions of the Act enacted to give rffect to the intendment and the scheme of the At l=lve no roorn for doubt that Stand · ing Orders cerjificd under the Act become part or the staiU10ry t<rms an~ conditions of .. rvice between the employer and hi• cmp!o)<< nnd they eo .em the relatiouship bet wren the parti<s.I333E-3J4G] ...

Wrttrn India March Company !.rd. v. Workmn.,: [1974] I SCR 4H. WJtk . man of Mtssrs FirtJiont T)" & Rul>ber Ca. of frtdia (Pl Lrtl. v, Manoxrinnr

and Or1; [1973] 3 SCR '87 ot 612. Workmn: ill fJurki!oglwm uurl Cumurfc Mill• Mudros v. Buckingham ond Cantalic A[; /Is: ]1970]1 labour Law Journ•l 26 at 29. M /s. Glaxo l.Aborarorl-. (I) Ltd. v. Tl.t Prmlill/! OJTrur, Lob..•:v Court, Mfrrut & Ors; [19R4] t SCC 1. A.\"'11 Efu('{cily Supply Cu. I.J.d. f, s, i Allot/in & Ors: [197U]l SCR 805, ref"rred to.

Upon a corTbined r•ading or Srandio11 Order (S.O ,) S4 ulong with RuleS and 6(u) or the Grtuity Ruks, it becomes diltinctly ck"r th•t PJY••~<nt of arouuily W.u dn cxprcs~ or st.tlutory conditiont of service eovcrlnv th.: h:lJai.:>n ohip bct.,."Q the appcllanl and the rc>po; ulcn t. Thorcfor~, It wuuiJ lJ<; <•bli~" t.'r)' Upon the rnpondcnt lO pay (I•Jtuity O; J rtiwn!Ut to tho arp:i!Jht. JfthC rrtpondcnt rdu' C'1 to pay or dl\ChJrgcits stJtutory obli~tuoo. th: claim on be enrorc<d by. civil uit, Te Hl Court WJS or the orinion th>l in""" of . Rule)'' or the Gratuity Rb. t":ovcty of gr>lUJty c..nnct b<: cnrom:d by. ci•il ,_uit. But upon an lndu.ttrial ui•rute jng r:thcd the lmlu•trl.il Tntuc.Jt

my _bc n I positiOn 10 award th: if:J1Uity ;11 3 m:lltc; or rh; ht ev.:n unJ.:r lh.: <ltltrn& rules, In reochlna this c"nctu5ion th~ lllt:h Cuurtovrlool.cd the erT ct. of the certified litandinv Ord:r1 and th~. inl<rrelutiun b<twe<:n rhe GrJtu'l)'

. Rulo ar.d S.O H, Whco under 19-tG Act, nn obiliw:n'10n is c:1>l o.1 the~·

Jllo>er to spccofi<ully nd prcci>cly Ia)· down the cunditions or crvice, 5<:· tJt.) •uhjccu the en•plo>)cr to~ V<n•ht if any act is <lone In contr.tvrntlv~ uf t~¢ Suondinf Orden e<:rtilied unJcr the Act, A rae~ I of collective bar~:inin& h th.ll •n) ~et\l<m<nt rrivcd at between the JHrtiC~ would be treated ws inccrr"•t•J In the c:.ontroct of~··"' 0 f ... h cmpiO)~C voverncu by the >ettl<nt<nt. Sm•iiJr~ Y

rllfo :.d StJndins Ordcrt wh~~:b Sttut<mly prcs.:ribe the comlitk'ns r scrv~<.'#.

o.b~ I be dcerncd to be lncorporatt<l in lhc contra~! of tmpk>ym<nl of ea.:h ••~· p:O}cc "'ith hi> cmp[O)Cr.

J( tht employer C<>mllliti U brcadl Of th< ,,, ntr~'t or en.plvJn:<Ut. the tn:e con tc cnfocced or c.meJicJ dondill~ Ul"-'" ,,, e ...

s.c. SARKA.R 1' •• TA.TA IRO~ &_ Sl'EfLS CO. 327

: bY ~-civ11 suit. The jurisdictbn of civil court among<! others is

,.r~C suh\ the natur~ of reliofclaimd. If the relief claimed is a money

• termlned 1 d' r h r .c forcing statutory con 111ons o scrv1c~. t e ctv1 court would

G"l~ byh ~~ 1udsdiction to grant the relief. [JJSF-337Bl (tf!JIOIY ••~ • . • , '. •

. [:Wuur [a,. f,.rt aiul Matda/J bj• PaulDavl-. and Mark Freedland p.233

S O.~Jn<lustrial Rdtim>J in Great 8 itnfn p. 5~-59, referred to. •"" yJ:tl ' . . • ..

Jn the instJnt ca<•. the appcll~t filed the uit alkging taf he wa~ entitled tOpl)m<nt of ~"'tu ity o~ co:nplc•thon _or scrv1c~ fo_r, the pertod _prescribed. He

:· .. ~!ltgtd it and the Hrh_C''.U' t accept,·~ tt as _B condn1on of sery; ce. Its breach •®ld give rise to a CIVIl dr.<putc nnd crv1l sUit would be the only remedy. In the weofv.orkmcn t:ov.•rnerl by th~ lnd"'trinl Dispute< Act, 19-l7, Sec. 33(c)(2) ,., y provide an aJditional forum to reCO\'Cr monetary benefit. It is nt suggesu41hat appellant wa< a wo, kman_governcd by the Industrial Disputes Act. The tlilh Court wa~, :herdore, in error in holding that the remedy was only by .-ayoran indu!lrial dispute and not by a civil suit, [JJ 7C-D] ·

I l

The Court while interpr:ting nnd enforcing the relevant gratuity rules will IIJvtto be.:ir in mind th~ co1cePt of gratuity. The fundaJllental principle under

!inc ar.uuity i~ that it it a rctirment benefit for long service as a provision Cor

ld •et Deri1ands of socia! '' curity and social justice made it necessry to ,..,.; de for payme••t of gratuity. On the enactment of the Payment of Gratuity Act, 1972 a statutory llabiluy was cast on the employer to pay gratuity. .. . . . .

[3JSCD1

Pauion and , ratuity which have much in common are wellrecognised retirol lrmrfi11 n musurt:! of soda! sccrity. It Is now wctl-,.n led that pension is a

IJht lnd payment O( it docs not depend UpOn the discretion Of the employer,

'-It~ C.ln I* denied at the sweet will or fancy of the employer. If pension 080 ::; e:o.-cred through civil su:t, there js no jultilication In treating gratuity on a

"'"~ foot inc. Pension and gratuity in the muller of retirnl benefits and for 110&the\Ome must be put on par.l339G-H; 340AJ. .·

UJ ::vha~Pi'r Tapti Mil/, Lid. v. 8;1rltanpur Tapll Mil/$ McJ:door Smgll: [1965] 'll 4~3• Dtukinundun PraJotl v. Slille of Bihar & o,.., [1971] Supp. 'SCR o,,: t <{ Pun}ob & ~"' v. f<tbal S/nftlr, [1976)3 SCR 360, D.S. Nakara ..1 '. nlun of India, [198}] 2 SCR 16~; referred to. •

lrtht, ur.,~ . • s •· 0,41 or P•Y>t:ent of gratuity become incorporated in the tanum& llllJdtheL . " f • R •lbrtrary dto ""Y lcqulrctl the status of tho statutory condH 10n o servtCC. a : rt}C{tfd otl rcferl>lt to whim funcy or wect will or the employer n•ust bo

f)~ t\lli.~' l<bitrary, Sc. 4 oC ; he 19~6 Act whkh confers power on the ttrti• t 'ltnt, j .ef or the lppcllacc authority to adjudicate Ul"-ln the fulrn<'>> or reason. •Mr.'!) or the Provisions would cnabl• thh Court to rj"ct that part t>f Rule IO ">nrrs ,__ . " r · !'""d . ~""'lute discretion on the employer to pay 11rntu•ty even I It IS ,.,•t, tsabr n:f d trr!Cittr.b so Ute di<crction a~ ullerly unr<asonable, IOC ec !YC an "'l., ro, le.Th; at Part or Rulo 10' mu•t therefore be 1reated ns ineffective D.lld tfib~. l3.10c.o] • •

8 ( .

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328 ,

SUPREME COURT REPORTS U984J 3 s.c.lt..

Tbc claim to absolute discretion not to pay gtatuity even When it is t:l " is a bang o\ltr of the /oiJstZ fa ire days and utterly inconsistent with the mOdrne.J notion of fair industrial relations and, therefore, it must be rejected as inctr.; rn and beoce unenforceable. [340H) . .

Wuttrn India Match Company Ltd. v. Workmen, [1974] I SCR {l-4 referred to.

Our Contitution envisages a society governed by rule of law. Ao!ute discretion uncontrolled by guidelines "'hich may permit denial of equality bcfo~ Jaw is the anti-thesis of rule of law. Absolute discretion not )\ldicinlly rc\'icwabl~ inheres the pernicious tendency to be arbitrary and is, tb<refor~. violative of Art. !4. Equality before law and absolute discretion to grant or deny bcncGt of the law iue di3metrically opposed to each other and cannot co-exist. Thcn:for<. also the conferment or ab!olute discretion by Rule 10 of the Gratuity Rules toai've or deny the benefit of the rules cannot be upheld and mu•t be rejected :u. uneoforceable.I34JA-CT

CIVIL ArPrLLA.TlO JURISlJICTJON :Civil Appeal

No. 1803 of 1070

From the Judgment and Order dated 6.8.1968 of Pijtna High.

Court in first appeal No . .444 of 1967. -

D.N. Mukheiu, Ronjun Mukherjee, A.K. Gonguli & S.C. Ghosh for the appellant •.

R.B. Da!ar and Ms. Vina Tamta for the respondents . .

The Judgment of the Court was delivered by

Dv.sJ J. Appellant, an employee of Tata Jron nnd Suet Company. Limited ('Company' for short) bas bee a chasing n mirag~: to wit !o recover a paltry sum of. Rs 14040 bemg the amount of gratuity to which he was entitled for the. continuous service rcnMr ed by him from Dcember 31, 1929 till Augut 31. 1959 under wiHtt are styled as Retiring. Gratuity Rules, 1!137 ('Gratuity Ruks' fr sbort) from the Company and in this wholly unequal tight he 1; rlll

down his life before enjoying the pillance to which he wus cntil"t after three dcades of loy11l service. What a dreadful return for abJect loyally'! h(n the appellant retired by resignation from service ~~ was patd hts provident fund dues but gratuity which he wus cntttl to be paid under the relevant rules was not paid to him. WheO th~ appellant climed payment of gratuity, the respondnt turned dca

' .

' I

S.C. SARK~R V. TATA IRON & .STEEL CO. (Desai, J.) . 329

ears to it. Appellant sevred a notice dated September 6, 1981 call~

ing_ upon the r.espondent to pay the amount of gratuity being Rs. ·.

14040~. The Company did not respond to the notice. Thereupon the appellant 'file<l,.M .S. No. 452 of 1962 in the court of Subordinate

Judge at Jamshedpur.

The respondent appeared and CO!J.tested the snit inter-alia contending that 'in terms of the contract of service and particul.arly having regard t? the relevant rules under which gratuity can be claimed, the same -is payahle. on certication of sntisfactory service by the

' hea~ of-the department; and it is payable at the absolute discretion

of the Company irrespective of whether the employee ha.s or has not . C performed all or any. of the conditions stated in the'rules and no employee howsoever otherwise eligible is entitled as of right to any payment under the rules.'

The learned trial Judge framed the issues bn which parties . were at variance.

Th~ learned Judge held that the plaint does dis-* D• close a cause of action and the. plaintiff was entitled to claim and' recover the amont of gratuity with interest thereon. Accordingly, the suit was decre<; d against the Company directing it t_o pay the amount claimed in the plaipt with future interest at 6% per an11um .4 with costs. ·

E . ...

The respondent Company preferred Fist Appeal No: 444 of 1963 in the High Court of Judicature at Patna. A Division Bench of the High Court h'eld : ~) that the service conditions of the plain: tiff were governed by the. Works Standing Orders and that It was an implied condition of service .that the pal in tiff could get gratuity in accordance with the Gratuity RuleS ; (ii) that in view of Rule 6, ......-.. an employee governed by the Gratuity Rules. is not entitled .to claim the same as a matter of right but he merely attains the benefit of eligibility or suitability f9r the retiring gratuity and not the rigqt iii) that until and unless the Company has decied to pay the gratuity in accordance with Rule 7 or otherwise, the mere fact of the employee becoming eligible to get it under the.relevant rules which can be enforced in a civil court because the matter ?f

G ..

, payment of gratuity is at the a qso!t1te discretion of the Company as -1 provided in Rule 10, and the employee, howsoever; unfortunate the position may be under the mod ern stage of the society is not entitled to ct'airn it as a matter of right because even though payment of

gptuity underOthe Gratity Rules is an implied _condition of service,

-+ 330

SUPREME COURT REPORTS

[ 1984) 3 S.C.R. l

yet tlie cndition is further conditioned by the provisios made in the. . . . .

Rules and is subject to them; .iv) that such a claim may be enforced before the Industrial Tribunal under the Industrial Dispu.tes Act, 1947 brit it is not possible to hold . that the law contract or the law of master and servant which is the only law to be enforced in a civil court can justify orr interpretation of the Gratuity Rules jn question that the' plaintiff can be gran fed decree for payment of gratuity on the footing that it 'f3S he unconditional or uncondition- ed contractu~! obligation of. the employer to pa)' such a money ; v) . the 'payment of gratuity money is not a gift-pur~ and simple, but ·

under the relevant rules lt IS in the nature of an incohate claim Of interestand not a right enforceable by a Suit in COUtt, because under the contrac~ of service, the grant of gratuity has been left.to the sole discretion of the emp1oyer as the relevant rules provided that no employee howsoever othcrvise eligible shaH be.deemcd to be'entitlcd

as of right to any payment under the rules.

Accordingly the appeal was allowed and the, judgm ent and decree of the tdal court were set _.aside and he plaintiff's suit was dismissed, directipg the parties to

bear their costs.

.~· tJ ence this appeal by the ptaintff by special leave:

. E At the ote.t it is necssary to ntice the relevant rules rtlied. ·~ upcn by the respondcpt in support of its submission that the gratuity cannot be 'Claimed as a matter of right and the c1aim to gratuity can.not be enforced in the civil court. The Retiing Gratuity Rules came into force with effect from April.}, 1937 and at the relevant time, the rules as Bi11ended in 1948 were in. 9peration. Rule 5

 F provides for 1 retiremnt of every uncovenanted employe~ of tl1e Company on attaining the .age of 60 years 'subject to the right of the company to grant extension. This rule is a mere incorpo'ration pf /-1 S.O. 54 which provides for retirement on attaining tl'te age of 60.

Rule.s 6, 7 and 1_0 may be.Cxtracted : ·

''6. (a) Subjed to the conditions referred to in these rules, evl!ry per mapcnt unconvenanted employee.of the Com~ pany, whether paid on _monthly, weekly or on daily basis, inpluding those borne on the pay rolls of the Company of the Collieries and <tt Ore Mines and Quarries, will~ eligible for a retiring gratuity wh.ich shall be equal to half a month's salary or wag; s for every completed year of continuous sel'vice~~

I .,..

S.C. S, l..RKAR v. TATA :iRoN & STEEL CO. (Desai, J.) 331 • subject to•a maximum of twenty months salary or wages in A :all,

(b) Provided that when an employee dis. retires or is 4ischarged under Rule ll(2)(ii) and (iii) hereof, before he. 'has.served the Company for a continuous period of 15 years~ a gratuity ordinarily limited to half a month's salay or wages for each qualifying year ma'y be paid subject, however, to a maximum of 6 n\onths' sa1ary OJ wages in an.

(Amended vide {3oard Resolution No. VII 'dated 2nd

B . '

.. July, 1953.) C

. (c). The retiring gratuity will be basd on the rate of <the salary or wages applicable to the employee in: .the last

mont~ of ctive service or if the employee has retired while. <On leave, in the last month prior to the employee going on 1Ieave . .

(d) In the case. of an uncovenanted employee wl\o hs 'been transferred to another Tat a concern, the retiring • gratuity payable to him under Rule (4) 8 (a) heretlnder will be based on the rate of the salary or wages:applicable to the -employte in the lastmontlr of' service with the Company,

On focc from 1.4.1-946 as per Board Resolution ,.<fated 8.4.1948.)

7. Notwithstanding atything contained in these Rules :a gratuity shall become due and be payable and shall always 'have been deemed to have become due and payable only in ·

:such instalments an.d over such period or periods as may • be fixed. by the Board of Directors of the Com2any or subject .to the direction of the Board by the Managing Agents. Until . . ' . ' :any such instalment shall become {)r have become due and payable, .the employee or any dependent who qualifies for :paynicnt under the Gratuity Rules shall not be eligible to

receive or be paid any such instalment of the gratuity.

l 0. AU retiring gratuities granted under these Rules nther than special gratuity to be paid l}rider the provision~ of :Rule 22 hereof shall be at the absolute discretion of the Com-

SUPREME COURT REPORTS [I984] 3 s.c.!tl . . . . . . . . pany Irrespective of whether an employee .has S)r has not performed ail or any of the conditions herein after stated, and no employee howsoever otherwise eligible shall be deem~ ed to be" entitled as of right to any pamyent under these -

Rule~

...

.(Amended vide Board ..Rso!ution No. v dated 25 S~ 1955)."

•I? ...

.. .,

The contentio~ of therespndent is thatthe plaintiff did not retire from servi?e but he left the serviCe, o~ the CQmpany by resigning his post. This aspect to some extent agitated the mind of the- . "High Court. It may be dealt with first. It is not only not in dis- . pute, but is in fact conceded that 'the plaintiff did render continuous ..

service from Deccmber.31, 1929 till August31, 1959. On exact computation, the plaintiff rendered service for 29 years and 8 months. Rule

6(a) which prescrjbed the eliglbility criterio'n for payment of gratuity • provides that every -permannt uncovena11tetl employee of the Com-· pany whether paid on monthly, weekly or daily basis will be eligible for

retiring gratuity which shall be equal to half a month salary or wages for ever.y omp]etedyear of continuous service subject io a maximum. of 20 months sala, ry or wages in all provided that when an employee dies, ntires or isdischa; ged under Rule 11(2)(ii) and iil) before he has. served the Company for a continu, us period of 15 years he shall be paid a gratuity at. he rate, therein mentioned.

The expression .. "retirement' has been dfin_ed in Rule 1 (g), to mean 'the termi'nation,; of.service. by reason of any cause other than removal by diseh argc due to misconduct'. It is dmitted that the plaintiff was a perilla-- nent unconvena'ted employee of the Company paid on rrionthly' . . basis and he rendered service for over 29 years and his service. came . to an end by reason of his tendering resjgnation which was uncondi~- . tionally accepted. It is not suggested that he was removed by disclrge due to misconduct. Unquestionably, therefore, the plaintiffre.tired from service because by the letter Annexure 'B' dated Au'gust

26, 1959, the resignation tendered by the plaintiff as per his letter dated July,. 27, 195.9 was accepted and he was released from his service with effect from September 1,1959, The tetminatio.{l of' service was thus on account of resignation of the plaint.iff being,

accepted by the respondent. . The plaintiff has, within the meaining,. of the eJ~.pression, thus r.:tired from service of the respondent .and-A ·. h~ is qualified for payment of gratuity in terms of Rule 6.

~ . )

S.C •. SARKAR. v. TATA IRON & STEEL CO. (Desal, J) 333

Rule 7, i~ our opinion, has hardly any relevance because it enables the Company to pa, y gratuity by iilstalments.

It is Rule 10 which is material for the purpose. It provides that'payment of retiring gratuity under the Gratuity Rules, othr . . than special gratuity to be paid under the provisions of Rule 22 which is not the case herein, shall be at the absolute discretion of the Company irrespectiv~! of whether an employee has or has not performed all or any of the •condition<; hereinafter stated, and no employee howsover otherwise eligible shall be deemed to be entitled as of right to any pyment under th~ rules. The stand taken by the respondent to deny gratuity to the pl\lntiff is that gratuity pay~

able under the rules is a matter of employer's largesse to be distributeJ atthe absolute discretion of the Company and cannot be clai- .med as a matter of right even if the concerned employees has fulfilled the eligibility criteria. It is the interpretation of this Rule which would govern the outcome of this appeal.

It 'may be mentioned that the High Court which ultimately upheld the cqntention of the respondent has.specifically held that gratuity was an implied condition of service of the p1aintiff in accor dance with the relevant -rules.

The High Court reach.ed this .conclusion by first referring to Works Standing Orders framed by the

Compny which govern t.he conditions ofservice of the plaintiff.

In other words accmding to the High Court, the service conditio11s of the plaintiff wsre g9verned by the Works Standing Orde, rs. It is therefore necessary to determine the character of the Works ' Standing Orders Exh. C framed by the Company. This aspect was

uverlooked by the High Cow-t with the consequence that tne High

Court found it difficult to enforce the claim of gratuity against the respondent by a decree of the court. What then is the character of the W otks Standing Orders framed by the Company '? Are .they mere unenforceable rules or arc they statutory in character or have a statutory flavour'? If they are statutory in character and they form part of'the contract of service of every employee governed by the same, then the question would be whether its brch can be 'repaired or enforced by a civil suit ? -

F -

The Parlaimet{t enacted the lnudstrial Employment (Standing Orders) Act, 1946 ('1946 Act' for short). 'fhe longtitle of the Act, Ht providys that it was an act to require employers in industrial esta~ blishments formally to define conditions of employment under them.

' !.~

...

IE .

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If "

<G ·

334 _SUI'{(EMe CO~JRT REPORTS [1984]3 s .

'""•· ..

Tile pramble of "the Act pr9vides that it is expedicni t~ ' . , . , . d fi . require employers m ~~ustnal estbhshments to e ne With suffieitnt Prcci- . sion th!! condtttons of employment under. t)lem and to malce.th

said conditipns known to workmen employed by theni. Bv Scc11-.e . . 3, a duty was c_ast on the employer , governed by the Act to submit to the Certifying Officer draft standtn.g orders proposed by him for adoption in his industrial establishment. After going througlt tlJe procedure prescribed in the Act, the Certif) ing Officer ha~ to mtifv the draft standing orders . . _Section 8 requires the Certifying Oflicw to keep a copy of standing orders as finally certified under the Act · in a register to be maintained for the purpose.

Sub-sec. 2 of Section I~ Imposes a pealty on employer who does any act in contravention of the standing orders finally certifid under the Act. The act was a lcgi<lative response to the /oisse: firs rul¢ of hire and fire at swed will. It was an attempt at fm; Jo>ing a statutory contract of service between A'II"' parties unequal to negoti3te, on the footing of equality. This wa~ vividly noticed by tilis Court in ws/em India MIIUI: Company Ltd. v. lVorkmenL a; und:r:

"In the sunny ·. days of the market economy theory people incercly believed thut the economic lawbf demand and . supply in the labour marl; ct would settle a mutua!ly b:neliciJI

bargain between the employer and the workmen •• Such a ba•jpinth)!Y took it for granted, would, sccun: f; ir terms nnd conditions of employment to the work man. This \a IV the~ vnc rated as nturallaw, They had an ubiding fjith in thcvrity_ of this law. But the experience of !he working of this law . over a long period has belied their faith. ••

The intcndmcJ; t underlying the Act and ihe provisions of the Act enacted to give clfcct to the intcndmnt and the scheme of the Act leave no.· room for doubt tliat the Standing Orders

ccrtJc_d unucr the 19~6 Act become part o(the tatutory t, rms and conLIHtons of" >crvicc: between the employer and his cmploye 30J they &<>Vern te rd.ttionship between the p.trtics. Jl'orJm, n pf

MnrJ Ftrc' .. tvtu TJr~ & Ru?hr Ca. uf Jrrdiu (P) Lrtl. v, Manas("

111 ~' 11 11'1" OfT.' Workrwtl in B t klrtglttm cr1.1 C.mt&Jtic Mills M<~J(IJS v, B.tki, gha''' Ulll/ Curmulc Mlll.f~ .mtd M/J GI<I.~ :J LJ1bcJratrHit"J (/l

(!) )197~J I SCR 43-1.

ll) 111173) 3 SCR S87 at612. (lJ [1970) bour Liw Joornal 26 at 29.

 ..

S.C SARKAR v. TATA lRO~ AND STI!£L CO. (.tJesai; f.)' .

. Lfd. v. Y:he Presiding Officer, Labourcoart, Meerut & Ors. 1

The High Gourt recorded the finding that service conditions of the plaintiff were governed by_ the Works Standing Orders. No exception has been taJ<.en to this finding . .a may at once be noted that the . Works Standing Orders of the Company are Certified Standing Orders, under the 1946 Act evidenced by Certificate No. 45

dated. March 18, 1950. S. 0. 54 provides that every uncovenanted employee of the Company shalt retire from service on attaining the age of 60. yars. This S.O. 54 is bodily incorporated in Rule 5 of the Gratuity..Rules. Relying.'on S.O. 54 and the evidence 'recorded in the case, the High Court reached the conclusion that payment of gratuity was an implied condition of service of the pbintiff. Rule 6(a) provides that 'st\hject to the conditions prescribed in the :rules, every permanent uncovenanted employee of the Company will:

be eligi b1e for a retiring gratuiLy in the manner and to the extent for a retiring gratuity in the manner and to the ex\ent inentioned therein. Reiring gratuity becomes payable on retircmnt, w\lich

means termination of" service by reason. of any cause other than removal by discharge due to misconduct. On a combined reading of S.O. 54 an~ the Rule 5 of the Gratuity Rules the High Courtrightly concluded that payment of gratuity was a condition of. service but somehow the High Court . qualified it by saying that it was an

implied condition of service. It is weU-s-ettled by a catena of decisions, that Certified Standing Orders bind all those in employment at the time of service as well as thos.e who arc appointed thereafter., Agra Electricity Supply Co. Ltd. v. Sri Alladilz & Ors.2 Now upon a combined reading. of S.O. 54 along with Rule 5 and 6(a) of th~ Gratuity Rules, it becomes distinctly clar that payment-of gratuity was an express or statutory condition of service and. ro this limited extent the finding of the High Court has. to be ;. modifie9.

If payment of gratuity is thus shown to be a statutory or express condition of governing the relationship between the plaintiff and the company, it would be obligatory t.1pon the company to pay the gratuity on retirement of the_plaintiff. If the company declines or refuses to pay or discharge its statutory obligation, could the claim be enforce..d by a civil suit? The High "court was of the opinion

(1) [1984] lSCC 1

(2) (1970]1 S.C.R. 806.

-If

.!)

SUPREME.COURT REPORTS. [l984j 3 S.C; R ·

. that even though payment of gratuity was a C<}ndition of service. in ·

view of the provision contained in Rule 10, the same cannot be . claimed as.a matter of rig4t or its recovery canno.t be enforced by a civiJ suit. The High Court was constrained to observe that Rule 10 wh1ch 'confers absolute discretion on tl1e Company to pay the gratuity at its sweet .will is' unconscionable and incompatible with the modern notions or cpnditions whic;:h ought to -govern .the. relations -bet\veen employer and tha~ upon an i_ndustrial dispute being rais(!d,

the lndt!Strial Tribunal may be in a posjtio!i to award the gratuty as a matter or right even under tlre existing rules, but according to : High Couit, it cannot be enforced by a civil suit. In reaching this conclusion the High. Court overlooked the effect"' of certified Sta-nding OrderS' ad the inter-relation between the Retiring Gratuity Rules and S.O._ 54 ..

At this stage it would be appropriate to examine the effe<.(t of . a breach of condition of service which is either. statutory in 'characte_r

or has . the statutory flavour: When under 1946 Act, an obligation is cast on the employer to specifically and precisely lay down the conditions of s-ervice, See:' 13(2) subjects the employer to a peQalty if any act is d-one in contravention of the Standing Orders certified under the Act. It woJJld appear that such conditions of service pres .cribed in Standing Orders get incorporated in the contract of service of e.ach employee with his employer .. A facet of collective bargaining is that any' sett1einent. arrived at between the parties would be treated as incorporated in the contract of service of each employee governed by the settlement. Similarly certified Standing- Orders which statutotily prescrib.e the 9onditins o(service shall be deemed to be inco~:ported in the contract of employment of each . employee

with his emploYer.· As far as the incorporatori -of the results of . collective bargaining into the individual contract of. employmen~ .

-is concerned, the courts h ae --in . effect created a presumption

of more or less systematic translation of the results of collective bargaining. into individual contracts where these results . are in practice operative and effective in co~ trolling the ter"ms on. which: employment takes place : (Labour Law Text and Materials bJPaul.

Davies and Mark Freedland p. 233) 0 Kahn Freund describes. collective bargaining as -ctystalised custom to be imported into con tracts of employn1ent on t--he same basis. as trade custom (System of Industrial-Relations in• Great Britain p. 58-59)~ This w.9uld be all the moe true of ctrtified Standing .Orders governing conditions of seryic'e between workman and his employer. If the eployer -com mits a breach of the .contract ef mpJoyment; the -same' cn be en-

-y ....

.. J... ..

' . '

'I S.C. SA~K'AR v. TATA IRON AND STEEL CO. (Desai, J.) 337

:forced or remedied depending upon . the relief sought by a civil suit. . lf contract for personal service is sought to be specific<lly enforced

by a decree or civil court, the court will have to keep in view the provisions of Sc. 14 of the Specific Relief Act, 1963 which provid- . es that contract for personal service cannot be specifically enforced.

We are not concerned with the ex<oeptions to this rule such as the power of Industrial Tribunal to grant relief of reinstatement. We

are co.ncerned with the jurisdiction of civil court, The jurisdiction of civil court amongst others is determined by the nature Of relief claimed .. Now if the relief claimed is a money decree by enforcing

statutory conditions of service, the civil curt would certainly have jurisdiction to grant the relief. Plaintiff filed the suit alleging that he was entitled to paytrient of gratuity on completion Of service for th.e period prescribed. He alleged it and the High Court accepted

it as a condition of service. Its breach would give rise to a civil dispute and civil suit would be the only remedy. In the case of work~

man governed-by the Industria( Disputes Act, 1947, Sec. 33(c)(2)

may provide an additional. forum to recover monetar)' benefit. Jt n , is not suggsted that plaintiff was a workman governed by the Industrial Disputes Act. The High Court was, therefore, in error in holding that the remedy was only by way of an industrial dispute aJld not by a civil suit. In reaching this conclusion, th'e Court Higlt

clsed the door of justice to every employee though entitled to gr:atuity but would not be a workman within the meaning of the Industrial Disputes Act, 1947 to recover the same, except' where a pro~ secution an be successfutly launched for an offence . under Sec. 13(2) against the employer.

One more difficulty the High Court experienced in the way of .the plaintiff maintaining the suit and recovering the amount of gratuity was that under Rule 10 gratuity was payable at the absolute dispretion of Company and cannot be claimed as a matter of right ..

Undoubtedly, Rule 10 confers discretion on the c61pany to pay the

gratuity even if the same is earned by satisfying the condition3 subjectto wbich gratuity becomes payable.· Rule 10 provides that

ail retiring gratuities .grantyd tinder the rules shall be at the absolute discretion of the Companyirrespective of whether an e1n- . ployee has or has not performed all or any of the conditions set out in the rules and ilo employee howsoever otherwise eligiblefshidl be deemed to be entitled as of right to any payent under the rules.' Such absolute discretion is wholly destructive of the chatacter of gratuity as a retiral benefit. It is satisfactorily established and the High

338 . SVfRI;~T; COURT REPORLS

(1984] 3 S.C.R~ .

Curt has so rp.lp tb, at P~Yni~_pt of gratuity was a condition of" service lbeit implied cpndition or'srvice .which part .does not stand . scrutiny. 1946 Act was . amended speifically_ in 1956 by. Amend--

.ing Act 36 of 1956 by whi.cli power was c'onferred upon the Certifying Officer or appellate authority to adjudicate.upon the fairness or reasonableness of the' provisions of any standing orders. If is not. . clear. whether the Rule JO wich apppears to h; tVe been framed in the heyday or laissez faire has been recast, modified or alnended to. ·bring the same in conformity with the. modern notions of social justice and Part 1 V of the Cqnstitution. Assuming it is not done, the court while interpreting and enforcing the relevant rules wili have to l:iear in mind the oncept of gratuity. The fundamental principte'underlying gratuity is t, hat it is a retirement bnefit for long. · service as a provision for old age. Demands of social security and so.cial justice made it neoessaty to provide for payment of gratuity.

On the enactment of Payment of Gratuity Act, 1972 a statutory liability was cast on the employer to pay gratuity.

Pensob a'!id gratuity coupled with contributory Provident Fund are \Velhecognised retiral bnefits. '{hese retiral benefit&

arenowgoverned by various . statutes such as the Employees Provident Fund and Miscellaneous Provisions Act, 1952, the Paym.::nt of Gratuity Act, l972. These stati1tes were legislativf? responses tOthe developfng notions of fair nd lnnnane conditions of work, be· ing the promise Of Part IV of the Constitution. Art. 37. provides that 'the-provisions contained jil PartIVDirective PrinciP.les of State Policy, shall not be enforceable by. any court, but the principles therein laid down are nevertheless -fundamental in the governance of the country and it shall be the duty of the Stu(e to apply, these _ principles in aking laws." Art. 41 provides that 'the State shall •

. within the limits of its economic capacity and development, make

effective provision for securing the right to work, to education and to publi_c assistance in "pases of unemployment, old_ age,• sicknesS: and disablement, and in othet cases of undeserved want.' Art. 43 obligates the State to s'ecure, by suitable legislation to all workers, a living wage, conditions of work ensuring a decen.t standJ:lrd oflife anti full enjoyment of leisure ...... :·' The State discharg ed its obligation by enacting these laws, But much before the State

nacted relevant legislation, tlw trade unions either by e'?llective bargaining .. or by statutory adjudication acquired certain benefits, gratuity being one of them. Pension and gratuity are botli retiral benefits ensuring that the workman _who haS. spent his useful san

~ -

··~ ;

S C. SARKAR v. TATA lRO'N AND S.TE::L CO. {D.!; ai; 1.) 339.

of life in rendering service ancl who never got a living wage, which would h<we enabled him to save for a. rainy. day, should not 6e re~ . duced to destitution and p nury in his old age. As a return of long service he should be assured social security to some extent in the fonn. of eithe'r pension' gratu'ity or provident' fund whichever retiral ber; lefit is operative i"n the industrial .establishment. Jt must not be 'forgotten that it is not a grati.tious payment, it has to be earne-d by

l?ngand continuous service . .

<'in such social security measures be denuded of'its efficacy and enforcement by so interpreting t~~ relevant rules that the work~ man could be denied the same at the absolute discretion of the em~ ploycr notwithstanding the fact that lle or she has earned the sne by long continuou~ service? If Rule 10 is interpreted as has been done by the High Court, such wohld pe . the stark albeit unpalatable outcom~ ... It is therefore necessary to take a leaf out of history bear~ ing 0:1 the. question of ret ira! benefits like pension to which gratuity i$ equated. In B<trhanpur Tapti 'Mills Ltd .. v. B:trhanpur. Tupti Mills

Mazdoor Sangh(1) wherein thiS Court observed that:" a Scheme of.. gratuit.v and a ; cheme of pensio.o1 have much in tomr, non. Gratuity i~· a lump sum payment white pecision is a period payment of a stated sum." Undoubtedly both have to be earned .try long and

continli<; ms service. ·

For cnturies thcourts swung in favour of the view that pension is either a bounty or a gratitious payment for local service render ed. depnqing upon the sweet will or grace or'thc employer not claim~ able as a right and therefore, no right to pension c.ari be enforced. through court. This view held the field. and a suit to recover pension was held not maintainable. With the modern notions of social justice and social security, concept ofpens!on underwent a rad.i:.:al change and it is no, w wellsettled that pension is a right a'nd payment of it does not depend upon the discretion of the employer, nor can it be denie.d at the sweet will or fancy of the employer.. Deokinandan Prasad v. State of Bihar & Ors.,(2) State of Punjab & Anr. v. Iqbal 'Singhe) and D.S. Naka; a & Ors. v. Union of India(~). If pension which

Is the retiral benefit as a measure of social security can be recovered . . ( . .

(L) [1965] 1 LLJ 453.

(2) . (1971] Supp. SCR 634.

(3) ( 19761 3 SC'R 360. 0)

[1983] 2 SCR 165

 F

.,...

. A

340 . 'ruPREME COURT REPORTS [l984J3 S.C.R.

through civil suit, we seeno justitlcation in treating gratuity on a .

different footing. Pension a.nd gratuity in. tlie matter of retirat benefits and •for recovering the same must be put on par .

. ' -

The question then is : C::tn the court ignore Rule 10- 7 If gratuity is a retiral benefit :!ild can be earned as a mauer ofright on ;

fulfilling the conditions subJect to which it is.earned-;· any rule co;. feriqg absolute discretiol, l not testable 'on reason, justice or fairplay must be treated as utterly arbitrary and ureasonable and discarded.

Jf rules for payrn, ent of grattity became incorporated in the Standing Orders and thereby acquired the status of statutory condition of ser- _vice, iJ, n arbitrary denial ref.erable to whim, fancy or sweet will of the employer must be rejected as arbitrary. Sec. 4 oftbe 1946 Act which: . c<:mfers power on rhe Certifying Officer or <_ppellate authority to ad~

judicate upon 1-he fairness or reasonableness of the p(oVisiqns would .enabie this Court to reject that pa1t of Rule 10 conferring absolute discretion on the.employer to pay or not to pay the gratuity evt:, n D . if it is earned as utterly unreas6nable and unfair. It must be treated as.ineffective and unenforceable. It is well-settled that if the Certify.

ing Officer and the appellate authority under the 1946 Act while .certifying tj.1e Standing Orders has power to .adjudicate upon the fairness or reasonableness ofthe provisions -of any standing orders, E this C'..ourt in appeal under Ait. 136 shll have the power to do the same thing when especially it is called upon to enforce the unreason- -able and unfair pa'rt of the Standing Order. It therefore follows that part of Rule 10 which confers absolute discretion on the em~ ployer to , Pay gratuity~ even if it is' earned, at its absolute discretion

isine'ifective and unenforceable. This approach does not acquire . anY. precedent but. if one is needed the decision of this Court in Westem India Match Company Ltd. case clearly rules'to that effect.

In that Cilse, the company reliec;\ on a special agreement which was to some extent in _derogation of the provisions of the certified Stan- . ding Order:. The Court observed that to uphold such special agree~ rnent would. mean giving a go-by to the principle of three party particip, iltion, -in the settlement of the terms of employment, as represented by the certified Standing Orders and the[eforc, the inconstani part of special agreement is ineffective and unenforce. able. Tile claim to absolute discreti<; ln n, ot to pay gratuity even when it is earned is a hangover of the laissez faire days and utterly inconsistant with the modern notions of fair industrial relations and therefore, it must be rejected as ineffective and hence unenfor ....

able.

''t

...

~·- ' :'

' -

S.Q, SARIAR I!'; T/I, TA IRON AND STSEL CO~ (DeaiJ J.)

Viewed from a sliahtly different angle, our Constitution envisages a society governed by rule of law. Absolute discretion un- -Controlled by guidelines -., hich may permit denial of equality efore

Jaw is the anti-thesis of rule of law, Absolute discretion U()t judicially reviewable inhers.the_ pernicious tendency to be arbitrary .and is therefore violtive of Art. 14. Equality before law and absolute

<l.i9Cretion to grant or. deny benefit of the law are diametrically

.opposed to each other and cannot co-exist. Therefore; also the • .conferment of absolute discretio~ by Rule- 10 of the Gratuity Rules to give or deny t.he benefit of the rules cannot be upheJd .and must .be rejected as unenforceable.

The High Court reversed thedecree of the trial colirt on t1te .sole ground that Rule 10 confers an absolute discretion on the .

-respondent-company to pay or notto pay gratuity at its sweet will.

Qnce Rule 10 is out of the way, the judgment of the High Court .lJ.as to.be reserved. Accordingly, this appeal succeeds and will have

-19 be allowed.

I The trial court decreed the plaintiff's suit with ,-costs and. with interest at 6% per annum. Interest at 6<ya.per

nnum has become uttrly irrelevant in these days with devaluation . .()f the-rupee. further in our opinion, the company declined to meet

.it~ obligation on an utterly unreasonable . stand apd denied to' the •plaintifff or a period of a quarter of a century what the plaintiff was legitimately entitled with01.1t the slightest shadow of. doubt. Therefore, while allowing the appeal in order to compensate the loss s; ffered by the plaintiff who died before enjoying the fruits of his .Jecree, we direct that the interest shall be paid at 15% per aimum . ·

and full costs throughout.

Accord iogly, this appeal is allowed and the judgment and decree -of the High Court are set aside and the decree of the trial court is restored with thi~ modification that the interest shall be paid on the . principal amont of , Rs 14,04~ at 15% frm-1.7.1959 till payr:ne?t

and full costs throughout be paid to the plamtlff. The costs plamtiif .in this Court is quantifie~ at Rs 5,000. The payment shall be made

ithin a period of two months from today.

R.S.K~ •

SUDHIR CHANDR, A SARKAR

D.A DESAI

A .. P. SEN

A ERADI, JJ.

Gratuity Rules, 1937

Mark Freedland

Sec. 33(c)(2)

Industrial Disputes Act

D.N. Mukheiu

Ronjun Mukherjee

A.K. Gonguli

S.C. Ghosh

R.B. Da!ar

Vina Tamta

Augut 31. 1959

S.C. SARK~R V. TATA IRON

High Court of Judicature at Patna

Othe Gratity Rules

s 6, 7 and 1

Section 8

sec. 2

S. 0

Kahn Freund

Specific Relief Act, 1963

Disputes Act, 1947

Sec. 33(c)(2)

Industrial Disputes Act

Industrial Disputes Act, 1947

Sec. 13(2)

Art. 37

Art. 41

Art. 43

[1983] 2 SCR 165

Sec. 4

Westem India Match Company Ltd.

Art. 14


VNION OF INDIA AND 0THERS

v. .

OSWAL WOOLLEN MILLS LTD. AND. OTHERS

'.B

• March 27, 1984

[(). CmNNAPPA REom< A.P. SEN AND E.S. VENKATARAMIAH, JJ.J

lmpori Control Order, 1955. CtaU.se 8-B-Writ petitlon by company_impug- C ring order un, der Clause 8-Bgrant of exjJarte lnteri111 stay by lfigh Court

M•hether 11nlid and , legal. ·

Practice ·& Procedu, e-Statqtoty Or; lers-Grant o.f exparte interim stay by Courts.:..validity of. '

Petitiner company.situated in Punjab-Relief sought against Union Of lnd; fl" .· situated in New Delhi-Writ petition in Calculta High Cor1t-Fllig of whether vafid-

The respondeflts filed. a Writ petition in the High Court. of Calcutta against an order made under Clause 8-B of the Import Control ordr 1955, in respect or a consignffient of beef tallow \vhich arrived.at the Calcutta Port. A Single Judge

isue4_ a rule-andranted an interim ordey restrainin& the Union of India" and -the Chief Controller of ImP.orts and Export,<; from fil ihg any criminal complaint against the respotident-firm or its Directors and also a direction to pCrmit the: . respondents to re-export the consignment of tallow. A.n application \vas madeby the-Union of India to vacate the interim order, In the mean\vJ1ile the respOndents sent letters and telegtams to. the departn1ent. intimating that. the interim order of the High .Court had not been obeyed, and, threatening actioa for contempt of Court,' An application to co_.11mit _the Chief Controller or Imports ad Exports, and others for contept Of c9urt was filed by the com- .pany. Over-ruUng the request made on behalf of the Department to vacate the

iriterim order, the cou'tt issued a rule in the application for conten1pt and direc~ ted the..r>epar.ti; nent officials.to appear i~ person.

Bein'g aggrieved by the ot;:der, the Department filed'!- Special Leave Petition against the interim order a.nd the rule for contempt.

Allowing the appeal, vacating the ifiterim orde! and quashing the !ule fOi::- -contempt" of Coutt ;· ·

HELD: I. Writ' petitions .are often deliberalely filed in distant High B . ,,. Coitfts, s.part of a manoeuvre ia legal battI~, so as. to fenPer it difficult r°""·

'A ' ' 't

• - •...._,·

. ,,.

L"J-; JON 'v. OSWAL.WOOLLEN MILLS, 343. . . . . • the' ffici:ils at D!lhi to cio_v>!· appliction<J to. vaca~~ _stay where it becomes

.A

- • 11eCessary to file such applications. 'An .irieitable. 'reult or ihe filing or' writ

l)Ctitions -elsewhere_ than at, tl1t viace her~ the concernedOffi;::cs and. ihe re1e-.

: .J ... ,

--vant recOrds re localed is to d.!l~Y proJVpt retul-n and contest. [345BC, A) . . . .

- Jo ; he i~tant-~<>t. th'! rit pel; tiOn w~'i flied. in the .Calctta .Hih- _Curt: --When the pl'fx:e oftJie c"fn)1dny-is-in th~ Staie c.'f Pu.jab and all the prin.ciPat Tespondnts r.: in.Delhi. ' · . . , .. -·

2. A 'St1rurory or Je; a:h" a:; th~ Ol)e ~der" Clause 8-R of_ the Import . Control Ordet purporis to be made'. in the pub Ii.: interest and Unless there are

yen strogr grOupcls 'Or" rublic interest ari x.'p:a'rte intefrn Order ~:ill nOt be.

, :jll5tified •. T~: illy rippl"ep_riatt'oi"dei 10 m?ke in .. suCli cses is_'tO _issue notlce tO . a

- the respondents. and make it rclurnable" \vithin a !-hortperiod.'This should parti.,; , culafy bC so where 'the--Offi.:~~ of th.: Principal respondents and reieVant reCofdS •' lie. outside the. odinary juisdiction or the C<?urt. '.To , grant ·. interi_Ill relief

traight away and 1eave it_ to.therespondents to h_ave the interim order vacat'=<! may j:::opJ.rdi'>e th~ p_ublic-interest- [346G-J47A] ' . .· . . - ' '' . . . ..

. _3. -1{3.n intenm or:ler. is one.! m1d6 by a cou'r"t, parties 'employ every_ -device and tactic to wa~ off the final hearing or he applicatioa. It is theeT'. fore. necessary for the courti to be circumsp.:ct in the matter or granting . inerim relier. more particularlyso where the interi~ relief is direcied against.: ·,

:0rders Ur actions of public officials actipg in discharge of their public duty _and in' exercise Or statutory powefs. C347BJ ·.. . . .. , . ·. . -· . . . ·.

-~ . .

: ·; In th~ instant case, :no inierim relier Should hav~ been grantCd by the

High

. ·Collft. The. futerim, order iS Of a drastic character With a great potential for

~ mischief and has. the effect or prcictically _aIJOwing the writ petition at the stage

Or admission wit!loUt hearing the appoire P<irties. [347C, 3460] . . . . _/ <

- 4. The application JO cOmmit the allthoritie~ for' cOntelnpt of .ars tO bC a'dcvice to exct licences frOm tbeln~ [349BJ: court appe •

. In the-instant case.- th~ stJ.y of the oeration of the •abeyanCe' orde-r merely mei"nt that the \Vrit petitionCrs were entitled .-to have their applications disposed or bYthe coOcerned -authori!ies. The Hi_gh Court nOt haVing .set .any Jiritit- Or .

.. time for the disposal or the appJic:i.tiOns.· it was -not for the writ petitioiiers tO

'Jrllpo'ie time liffiit and demand that their applicatioris should be disPQ.sed 'of

fofthwith •. If-the writ petltionrs were aggrieved by the failure of thC aUtho.ri .

-tieS to dispose Pf ther ap'plication3 expeditiously, _it was open to them to seek a H. furth_:r direction from the court fixing a limit of_ time Within which the aPplica. . !' . tion!i wer~ to be disJ, OSed of. [348G.J49A] . - . ' \

. l . . . . ,' • . - •

' . Sl(PR~MB COURT REPORTS

[1984] 3 S.C.R:

C1viL APPELl; ATB JURISD\CTION : Civil Appeal

No. 19'./2 of 1983

From the Judgment and o'rder dated 22.11.83 Of the Calcutt:¥ High Court in Civil Rule No. 10933 W of 1983 and order is.suillg. conte!llpt notice dated 3:2.84 being Civil Rule No. 571 w.of 1984.

 Milon K. Banerjee, Additional Solicitor General, A.K.

Ganguli an4 R.N. Poddar for th~ appellauts. ·

. Soli J. Sorabjee, Mrs. Manik Karanjawa!a, Ratan Karanjawala.

Ku/deep Pablay, Sumit Kacliawha and Dr. Roxana Swamy for the respondents. .

A. Subba Rao for STC .

The Order of the Court was delivered by

. CHINNAPPA REDDY J: We. grant .special leave and procee<l to dispose of the -appeal.

' M/S. Oswal Woollen Mills Limited having its registered office at Ludhiana in the State of Punjab and a branch office-at Calcutta,

and Narayan Das Jain, Secretary of the Company have filed a wtit. /a petition in the Calcutta High Court seeking variom; reliefs against . 1.. _ the Union of India (through the Secretary, Ministry of Commerce, New Delhi), the Chief Controller of Imports and-Exports, New Delhi, the Deputy Chief Controller of Imports and Exports, Amritsar, , 'the Collector of Customs, Calcutta and the. State Trading Corpora- .

J! tion of India, New Delhi. The primary prayer in the writ petition-" is to prevent or to quash an apprebend.ed or purported action under

clause 8-B of the Import Control 'Order. All the other reliefs sought in. the writ petition revolve round the principal_ relief regarding clause- 8-B.of the Import Control Order. The other prayers are eitherancillary or inc.idental to the principal prayer or are of an inter-' locutory charar.tor. Having regard to the fact that the registere<i office of the company is at Ludhiana and the principal respondents. against whom the primary relief is sought are at New Delhi, one would liave expected the writ petition to be filed either in. the Higlh

Court of Punjab and Haryana or in the Delhi High Court. The writ ,';- petitioners however have chosen the Galcutta Hiih Court as theforum perhaps because one of the interlocutory reliefs which is sought is i:n respect of a consignment of beef tallow which has aqived at the ·

' '

. -

• UNION v .. OSWAL WOOLLEN MILLS (Chinnapa Reddy, J.) 345

Calcutta Port. An inevitable result <;>f the filing of writ petitions A -elsewhere than at the place where the concerned offices and the relevant records are located is to delay pro111pt return and contest.

We do not desire to probe further into the question whether the writ_ petition was filed by design or accident in the Calcutta High Court when the ot)ice f the company is in the State of Punjab and all the B principal respondents are in, Delhi. But we do feel d.isturbed that sue!) writ petitions are often deJibetately filed in .distant High Courts, as part of a manoeuvre"in a legal battle, . so as to render it difficult for the officials at Delhi to move applications to vacate stay where it becomes necessary to file such applications. More about . this later. C

It appears that an order under clause 8.-B of the Import Control Or.derhad been made against the company on Noveber 9, 1983, but the writ petition was filed aif the order was in the offing and might be made at any time, The writ petition was apparently filed in professed or real ignorance of the order made under clause 8-B of D the Import Conirol Order. ..

On November 22, 1983, a learned single judge of the Calcutta' High Court issued a rule Nisi and granted an interim order in the following terms:.

"There will be an interim order of stay/injunction in terms of prayers {j), (.kl, (I) and (ii) of the writ petition till the disposal of the rule.

Liberty is given to the respondents to app1y for vacation or vaiation".

The rule was made returnable on January 31, 1984.

Pl-ayers • (j), (k), (!) and (n) of the petition were !iJr .the grant of:-

"(j)-Injuction restraining the respondents their servants and/or agents from filing any criminal' complaint G against the petitioners or any of its director or employees from initiating any departmental proceedings under the Import and Export (Control) Act, 19-17 and Import (Control) Order, 1955 against the petitioners or.any of its Directors or Employees till the-disposal of the Rule; ·

(k)__:Injuction restraining the respondents from issuing an order of abeyance under clause 8 B oHhe lmport Control

II ...

• 346 . SUP!l.EME C0URT REPORTS [1984] 3 s.c.R.

A Order, 1955 and/or from taking anyaction under such o"rder of abeyance till the disposal of the rule ; ·

(!)--Mandatory ordet directing tbe respondent ,No.5 Coflector of Customs to permit the petitioners t_o .re-export the consignment of inedible Beef Tai low in terms of I.T.G; Public Notice No.37 of 19.83 dated l.9.83 with respect to the consignment weighing 456.316 MT which is.lying at Calcutta under section A9 of the Customs Act; ·

. (n)-An order that pending the hearing and final dis- C posal of this writ petifion the pefitioners be perm1ited to re- Ship and/or re-export the consignment of 456.216 MT of inedible Beef Tallow which arrived at Calcutta as more part\cular:y. menticihcd in Annexure T."

. Ho

It is obvious that the. interim order is of a drastic character with a great potential for mischief.

The principal prayer _in the writ peiition is the <:hallenge to the .. order !'lade or propo.sed to be made under clause 8-B of the Import Control Order. The interim order. in terms of prayers (j) and (k) has the effect (If practically allowing the writ petition at the stage of admis, ion without hearing the oppo- , siie parties.

While we do not wish to .say that a drastic inte-rim order may_never be passed without hearing the opposite parties even_ if the circumstances ju; tify it, we arc very firmly of the opinion that a statutory order sc:ch as the one made iri \he present case unde'r .. ·.

- clause 8-B of the Import Control Order ought not to have been siayed

 without at least hearing tl10se that made the order. Such a stay m;; y lead tq devastating consequences leaving no way of undoing tl\e mischief. Where a plentitude of power is given under.a statute, designed to meet a dire situation, it is nq answer to say that the very nature of the po, ver and the conequences \\'hich may ensue is itself a sufficierit justification for. the grant of a stay of that order, unless, of course, there are stlfficient circun1stances to justify a strong prhna facie inference

that the otaer was made in abuse of the power conferred by _tbe statute.

A statutory order such as the one under clause 8--B purports. to be niade in the public interest and uni em there are even stronger gro.unds of public interest an exp-arte interim order will not be justified.

The only appropriate order to make. in such . cases is to issue notice.to the respondents and make. it returnable within a short period. This should partii; ularly. be so. where the -offices of the principal respondents and relevant records lie outside

• -·

• .

' UNIO'.'l v. OSWAL WOOLLEN.MILLS (Chinnappa Reddy, J.) 347

1he ordinary .jurisdiction bf ihe court. To grant interim relief <11traight away and leave it to the respondents to move the court to vacate the interim order may jeopardise the public interest. It is notorious how if an interim order is once made by a court, partieg . i:mploy every device and tactic to ward off the final hearing of th~

application. It is, therefore, necessary for the courts to be circum- spect in the matter of granting interim relief, more particularly so. where _the .interim relief isodicected against orders or actions.of public -Officials acting in discharge of their public dut)* and in exercise of statu, tcrry powers.

On the facts. and circumstances of the present case, we are satisfied that no interim rnlief should have been granted by the High Court in the terms in w.t.ich it wa, s <lone.

Orders. under .clause 8-B of the Import Control Order, similar to the.one made against Oswal Woollen Mills Limited, were made against various import-export houses and others.

Some of. these -0rders have been questioned by the.affected pa1ties in diffrent High .. Courts and, in some cases, interim orders have also been obtained.

One such writ petition filed by Liberty Oil Mills Pvt. Limited has been. transferred to this court from the Bombay High Court at the instance of the Union of India.

The case is novr pending in this -court and has in fact been heard_ in part by this vary Bench.

Apparently, under the impression that 1ho questions at issue will be finally determined by this court in the c.isc of the Liberty Oil Mills, the Union of lrtdia aml the other autho1 ites do not seem to h_ve

moved expeditiously to contest the writ petiticllls filed in the H''<l!'h Courts and to have the interim orders vacated.

In the present cae. an application to vcate the interim order was filed in the Caicutta

Bigh Com£.on February I, 1984. Jn the mean_;, hile; Oswal Woojien Mills Limited went on writing letters _and sending telegrams compla'. . ining that the interim orders of the High Court had not been opeyed

, and threatening action for contempt of Court.

On January 6, 1984, :ar:i application to commit the Chief Controller of Imp9rts and Exports and others for contempt of court was filed by the company. Notice to the r'espondents was ordered on the same day and on February 3, 1984, overruling .the request made on behalf of the respondents that the petition to vacate the interiin order may be hear<) first, the High Court issued a rule in the appliction for cont- .empt of court againsnhc Ch.ief Controller of Imports & Exports :and the Deputy Chief Controller of Imports and Exports and

irected them to appear in person on March 6, ]984. Thereupon the Union oflndia, the Chief Controller of Imports & Exports, etc.

-...

H .....

SUPRIME COURT REPORTS .

[1984} 3 S.C.R... : ' .

have filed tli.e present special leave petition against the interim ordei-c dated November 22, 191!3. of the Calcutta High Court i~ Civil Ruli:c.

No.10933Wof1983 and the rule for contempt .of court issued on Februrary .3, 1984 inCivil Rnle No. 571 W ofl984. f..We have beard: Shri Milon Banerjee, learned Additional Solicitor General for the.

petitioners and Shri Soli Sorai:Jlee, learned senior Advocate for the respondents. .

. -

 We have already mentioned. that the High Court \as not right in granting interim relief in the terms in which it had done so.

We~ therefore, vacate the interim order dated November 22, 1983 mad~ by the Calcutta J:ligh Court. It has been pointed oui to us that .th" Chie(Cqntroller oflmports &.Exports has himself issued a Public: . N:otice dated 1st September, 1983 permitting re-shipment/re-export of import consignment which qould not be cleared consequent upon

the Ministry of Commerce Import Trade Control Order No 27/81 dated the 24th August, 1983. The. Public .Notice empowers th" customs authority to allow reshipment/reexp6rt having _regard tO-- the extent to which foreign exchange spent on import will be earned . back and subject to snch other conditions relating .t.hereto as 'the

Customs authority may.impose.· We wish to make.it clear thaUht:o vacating of the interim order. will riot disentitle the writ petitioner!>- . from seeking and taking advantage of the public notice

0dateci Sepiember 1, 1983. • • ,

In regard to the rule for contempt ofcou; t, we find it difficult to sustain thesame. Though ordinarily we would hove.· left the. matter to be decided by.the High Court, we think it unnecessary to . ' - . do so in the present case having regard to the elaborate argument~ addressed to us by bJth parties. The complaint of .the wdt. pe.ti- tioners in seeking the rule for contempt of court was that the authorities had not dealt with. their applications for licences, etc~ .. despite the .'abeyance' order having been stayed. It is obvious that the stay ofthe operation of the 'abeyance' order merely inant that the writ petitioners wereentitled to havetheir applications disposed of by the concerned authorities. The Higi1 Court not having set anylimit of time for the disposal of the applications, it wasnot for the . writ petitioners to impSse a time'.limit and dmmd that their applica-· tions should be disposed of forthwith. If the writ petitioners were aggrieved by the failure of° their authorities to. dispose of their applications expeditiously, it was open to them to seek a further direction from the court to fixing a limit of tim: within. which. the: . . .

'..,

--f

UNION v. OSWAL WOOI, Ll:N MILLS (Chinnappa Reddy, J.) 349:

applications were tobe disposed of. We fail to see how the Chief A.

Controller of Imports & Exports or the Deputy Chief Controller of Imports & Exports could be said to have committed any contempt of court, even priifl.a facie, by their mere failure to take action. in the matter. of the disposal of the applications of the writ petitions.

In the circumstances, we perceive the. application to commit the authorities for contempt of court to be a device to exact licences R from them. ·

We accodingly allow the appeal, vacate the interim order dated November 22, 1983 of the Calcutta High Court in Civil Rule No. 10933 Wof 1983 and quash the rule for contempt bf court issued on February 3, 1984 in Civil Rule No. 571 W of 1984.

Before we part with the 'case , we may refer to a statement made by Shri J.P., Sharma, Deputy Chief Controller of Imports and Ex , ports, New Delhi inth.e affiidavit filed by him before us to the effect that 'in the larger public interest Government was un~ b le to obey the interim order and had taken the question to this Hon'ble C.ourt wl]ich is pending decision shortly'. Torn out of the context in which it was made, the unhappy language in which it has been expressed is suggestive of contumaciousness on the part of J.P. Sharma.

However; he.has_ filed further affidavits before us ewlain, ing the context in which the statement was made and expre5Sing his unqualified regret. We accept his explanation an<! expression. of regret. We are satisfied that Shri J.P. Sharma .did not mean what the language employed by him suggested. However, we. do wish to express our disapproval of the language emplQyed which is certainly suggestive of contumaciousness. • '

N.V.K.

Appeal allowed.

VNION OF INDIA AND 0THERS

OSWAL WOOLLEN MILLS LTD. AND. OTHERS

CmNNAPPA REom< A.P. SEN

E.S. VENKATARAMIAH, JJ

Clause 8

High Court. of Calcutta

Clause 8

OSWAL.WOOLLEN MILLS

Clause 8

High Court in Civil Rule

Milon K. Banerjee

A.K.

Ganguli

R.N. Poddar

Soli J. Sorabjee

Manik Karanjawa!a

Ratan Karanjawala

deep Pablay

Sumit Kacliawha

Roxana Swamy

A. Subba Rao

CHINNAPPA REDDY

Oswal Woollen Mills Limited

Narayan Das Jain

Calcutta High Court

Union of India

clause 8

Ludhiana

New Delhi

Higlh

Court of Punjab and Haryana

Delhi High Court

OSWAL WOOLLEN MILLS

Chinnapa Reddy

Punjab

Delhi

clause 8

clause 8

November 22, 1983

Calcutta' High Court

January 31, 1984

clause 8

Customs Act

Calcutta

clause 8

clause 8

clause 8

Chinnappa Reddy

clause 8

Oswal Woollen Mills Limited

Liberty Oil Mills Pvt. Limited

Bombay High Court

Union of India

Liberty Oil Mills

Oswal Woojien Mills Limited

Jn the mean;, hile; Oswal Woojien Mills Limited went on writing letters and sending telegrams compla'. .

January 6, 1984

February 3, 1984

Union oflndia

Milon Banerjee

Soli Sorai

Calcutta J:ligh Court

J.P., Sharma

J.P. Sharma


i .

A .

UJ'E INSURANCE CORPORATION OF INDIA

v. .

RAJA VASIREDDY KOMALLAVALLI KA MBA & OTHERS

March 27, 1984

f.\1. BALAKRISHN!' ERADI AND SABAYASACHI MUKHARJI, JJ.]

Insurance Law~ Contratt of lnsuran-ce.:;_P, rOpoJa/ an(!. acceptanre-lnsli.red filling up the proposr:il for .insurance for Rs. 50,000 on 27. f2.!960 and after 'undergofffg-tnedical exa111ination rm the same d; te issues two cheques of. Rs. 300. and Rs. 210 towards cotisideration Dy wy fir"st p'emium-Thi-Jnsuran_ce .Corporation encash the cheques 011 1 J. I .196/ and the insured dies on I 2~1.1961~ Whethur there is a co11cluded contract of fnsl1ra11ce-When is. the acceplance said to be con1plete in Cases of contract of 1!1surance-C(}nfrac( Act, Sect(ons 2(h) and 4:

One Lare Raja: Vasireddi Chandr-a Dhara. Prasad died intest::1te on 12th January, 1961.

He had fil.led a propo.;; a1 for i{lsurance for Rs. 50,000 cry 27th December 1960. There was medical examination by the. doctor on the life of the deceased on 27th, D.ecembcr, ]960. The deceased issued two ch!qu:s being the consideration. ·!award'> tho! first premium f0r Rs 300 and.Rs. 220 respectively which. were cncashed by the appellant on 29th Decembe~ 1960 and 11th Ja.nuary1I96!. On 16th January, 1961," the widow of the deceased wrote to the appe11ant iiitint<lting the deatl\ of. the deceased and de1nanded payment cir Rs. so; ooo: The Divisi; Oal Manager, Masulipatm Branch denied liabilit)i" on behalf of. the ·"appelJant .on 28lh January~ l961. Thereafterthere was cones~ pondence between the parfies between 1st February 1961 and 23rd December 1963 .. On 10th Janl:1ai:y. 19.64, th~ . respo.:ident5 filed a suit in the Court of

Subordine Judge,· MaSUliIJi, tam. The trial court dismissed the suit holding, interalia 1 that there Was no .conclud.:d contra"ct, th.at. the Proposal was not. accepted by the Divisional Manager for some reas6n or the other by the time the decead.had died,. that neitiler the encashmen~ of the two Cheques crea-ted a contract of ins.ura.1ce. In appeal, the High Caurt aftr ordering c_eqain other. additional documents set aside t:1e Trial Court Judgment.

He.nee the appeal by the Corporation after .obtaining thi! s'p.:cial leave.

~ Allowing the.appeal, the Court

' HELD ; f. Havin'g regar2f to the clear position in law about acceptance of . insu.rance proposal and the evidence of record in thi'> case, it is. clear that the, ·• High CQurt was in error in coming to th~ conclusion that ther!!. was a on-.

eluded contract of irisurancc between th.: dc_eased and the Life I11surance. '"f..- 11 Corporation. [360D'E]

? .. '(hough in certain human r-elatipilship silence to a pfoposal n1i-ght

L.J.C. v. R.V. KA!\IBA 351

convey acceptance ut in the ca"se of insurance proposal, silnc~ docs not denote consent and no binding contract arises until the person to \Vhom an offer is ·

made 5ays or does something to signife' his _acceptance.

Mere delny in giving 3R an'i\Ver canilot be const(ued.as an acceptance, as, p-rin1a facie, acceptance must be communicated to the offerer. Thi! general rule_ is that the contract of insurance will be concluded only wh.:n -the p1rty to whorr1 an off:r has been n1ade accepts it unconditionally and con1municate-; his acceptance to the per-

- son-making the 9ffer.

Wbeher the final ac:; eptance i'ithat of the assured or insurers, hOWC\.'Cr, dpCnds sfrnply :on the way in which negotiations for an

insurance hilv~ progressed. [359H, 360A-B)

3 : 1. When an insurance policy becon1eseffective is v.'Cll-scHled by the authorities bufit is clear that the eApressio:i "underwrite" sig1;1ifics accept 1iability unOer that. The. dictionclry meaning a.lso indicaies that. lt is true 1l1at

normally the expressi.on "uodrwrite" is used in ivlarine insui:ancc bu~ 'the expression used in Chapter Ill of the Financial Powers of the S1anding Order in this casi; specifically used the expl-cssiOn 'funder ... riting and rev iYals" of policies in case of Lifo Insurance Gorj1oration and stated 1lat it was. the Divisional Manager who \vas Competent to uil.derwrite policy for Rs, 50,000 iJnd alove.

[3598,-D]

3 : 2. The mere receipt and retention of pren1ium until after the death of J) the applicant or the mere preparation of the policy document is not acceptance; Acceptance 1nust be signified by some acts or acts agreed on -by the parties of from which the law raised a presumption of acceptance. [359D~E) ·

3 : '3 'rn th~ instant case, the Iiigh Cuurt was in error in coming to the• foUowing conclu.lions ; E.

(j.) that there was not sufficient P_leading that there w1s no concluded contract_. and pun acceptance of the proposal 'vas not sufficieit averrpent ,.that

the Divisional Manager as the only competent authority to accept the propo sal; (ii) in its view a.bOut the pow_i.!rs of the diffrent authorities under Chapter III of the Standing Orqer 1950_, dealing with the financial po, wers ; (iii) about

the-view that the Assistant Divisional Manager having accepted the proposal and (;·~) about the assurance given by the Field Officers that the acCeptance of the-first premium would auton:iatically . create a concluded contract of insu

rnce' j358E-H]

_The Coun however directed half the amJunt of the insurance amount of Rs. 85,000 paid to the Repondents to berefunded to the Corporation. [360FG] . . .

CIVIL APPELLATE JURISDICTION : Civil appeal No. 2197

From the Judgment and Order dated 16.4.70 of .Andhra Pradesh High, Court in appeal No. 4)1 of 1965.

Dr. YS Chitale, V. G. Shanker, KL.Hathi, Ms. Sadhana, DK Chhaya, MK Arora and Mrs. H. Wahi for the appellant.

352 SUPRl!MI COURT RSPORTS.

[198"4]3 S.C.R.

T. S. [<riJhnamoorthi Iyer, K~. Choudhry and KS. Choztdliary . for \he respondents: · •

The Jtidgment of the Court was de!ivred by

SABYASACHI MUKHARJJ, J. This appeal is by a certificate granted on 18th September, 1970 .bY the f:!igh Court of Andhra Pradesh under Articl'e 133(1) (a) of the Constitution as ft stood at the relevant time against the Judgment and decre~ of the. High Court dated 16th April_, 1970. - By the said Judgment' and decree, the High Conrt of Andhra Pradesh had .reversed the Judgment of the :learned Subordinate Judge, Masulipaiam dated 19th November, 1964 dismissing the suit of the plaintiffs-respondents agaiast the . appellant. Late Shri Raja Vasireddi Chandra Ohara Prashad was the husband. of respondent No .. I and father of the respondents No. 2 to. 5 herein. The respondents filed a suit in the_Subordirtate Court of Sub-Judge being Original suit No. 2 of 1964 on 10th January; 1964: The short facts leading to this case are :

One Late Raja Vasireddi Chandra Ohara Prasad (hereinafter E •referred to as a 'deceased') died intestate on 12th January, 1961.

He had filled a proposal for insurance for Rs, . 50,000 on 27th December, 1960. There was medical examination by the doctor on the life of the deceased on 27th December, 1960. The deceased had issued two cheques fo.r Rs. 300 and Rs. 220 respectively in favour of the appellant as first premium.

Cheque for '[ls. 300' was P encashed by the .appellant on 29th December, 1960. Cheque for Rs. 220 was dishonoured three times and finally encashed on 1 Ith.

January, 1961. As mentioned hereinbefore, the deceased died on the day following i.e. on 12th January, 1961.

On 16th January, 1961, the widow o(the d.eceased, .respondent No. 1 herein, wrote

-G to the appellant intimating the death of the deceased and deroahded payment of Rs. 50,000. The Divisional Manager, Masulipatam Branch, 'denied liability on beh'alf of the appellant Corporation on 28th January, 1961. Thereafter there was correspondence between . the parties between !st February, 1961 to 23rd' December, 1963 wherein the respondents-plaintiffs had claimed the payment and the app.eliant had denied liability fov the s; ime.

_, . '

L.1.c. v. R.v. KAMBA (Mukharji, J.) 353

On the 10th January, 1964, the plainfiffs'filed the smt rn the .court of Subordinate Judge, Masulipatam. It was alleged in the

plaint after setting out the facts which have been set out herein .before, that the medical examination repott was submitted to the .J1ppellant-corp3ration by Dr. Sri C. Sambasiva Rao, Approved Medical practitioner of the appellant in regard to the medical' .examination of the deceased. A report .described as. "All the Friend's report" was duly. sent to the appellant with regard to that proposal ; and all the prelimitiaries werecompleted ani; I it was further alleged that the deceased was assured.and told by the. local agent and the Field Officer of the Corporatioh that the paymnt of the first premium wou.ld amount.to the acceptance of tho proposal and advised the deceased to pay the first premium in full. It was, further, st!ted that the said two cheques were ehcashed and the .appellant had duly appropriated the amount and credited in the .accounts towards the premium payable by the deceased. Therefore, it was stated that the deceased had fulfilled his part of the insurance .contract and the appellant, Corporation by its overt acts of en- .cashing the cheques and crediting. the amounts in its accounts accepted the proposal of -the deceasea. In the premish it was said fo the plaint that there was a concluded. and valid insurance cont .ract between the deceased and the appellant-Corporation and that the ins.urance contra'cted commenced on I Ith Janurary, 1961 being the date of the receipt of the balance towards premium by the Cor.poration. It was further stated in the plaint that the Office of -the. Divisional Manager of Masulipatam was the concerned authority to settle the claim of the plaintiffs-respondents and to pay the amount. The contention of the Corporation that -the proposal was -not accepted and as such there was no _concluded insurance cont- -ract between the deceased and the Corporation, was untenable, according to. ilie plaintiffs. It was alleged that with full knowledge . pf the completion of all the preliminaries, the Corporation had encashed the cheques issued towards the first premium and. there- .fore it was the case of the plaintiffs-respondents that the enc, ashment , of the cheques amounted in those circumstances In law to an .acceptance of the proposal of the deceased. It was further alleged 1hat the appropriation of the amounts by the Corporation towards •the first premium by the deceased was only consistent with the

.. acceptance of the proposal. The case of the plaintiffs further was

!hat in . this case the first premium was not only received by the Corporation completely _on I Ith January, 1961 but it was als& . _J!ppro.priated by it in its accounts and the said premium amount

' E

SUP, REME CQURT REPORTS .

(!984] 3 S.C.R,;.

. A. was re.ceived by t)le Corporation without any demur or qualifica-·

tion and th.at in any event t11e Corporation must be deemed tc> have Waived by it.s conduct tlie formality, if any, of sending co""

' .. ' - ' --· mrnunication of its acceptance of the proppsal. In the premises, th~ plaintiffs claimed the said amount along with il)terest at six per .cent per annuin from the date of refusal of payment till th~ dat~ or

payment ofthe demand.

Written statement was filed on .behalf of the appellant.

Jn, the said written statement, after setting out the facts, it was denied . . that t11e payment of the first premium amounted to acceptance of the proposal and the allegation about the assurance given to the

decesed as alleged° in the.· plai11t was not true nor the alleged assurance.i( any, valid und.er law. It was, futher stated that the two cheques were not e11cashed and credited towards the premium . . account of .the proposal b.ut these were kept only in deposit in

supense account without any tiability of the appellant. It was. further stated that tb.e averments in' the plaint that the defendant Corporation cashed the above tw0 cheques and appropriated the.. am9unts and credited these. Jn the account towards premium payable for the proposal were false. It was stated that on the death of the.deceased;· the amount covering two cheques were lying in the deposii and in the suspense account of the Corparation and: . was.not adjusted towards the premium since the proposal was not considered, the terms of acceptance was 'not fixed and the premium amount required for the proposal was not calculated. In tho$e circumstances, the appellant Corporation cktime<i that there was no liability for the risk and as such the . plaintiffs had no right ti> claim and there was no cause of action. It was categorically stated that the cheques were not' credited and adjusted towards the. prelliinm accounts.. . . ' 'During the trial before the learned Subordinate Judge, fivedifl:eient issue~ were raised. It i.s not necessary to set out in detail those issues but the important and main issue was wh)!ther there was a concluded valid insurance. contract between'the deceased and the Life Insurance Corporation of India,

Both documentary and oral evidence were adduced at .the Trial. The respondents-plaintiffs examined Shri.. R.V. Bhupa\a

Prasad, son of the deceased and the Corporation on its beh<tlf examined Shri Jagannadhacha1{ the Superintendent of the Corpo-

'_, •

. .

L.I.C. l'. R.V. KAMBA (Mukhar)i, J.) 355

ration branch at Guntur. He also produ'ced ex. B-4, the reviw. slip, prepared by the Branch office, Guntur and. sent to the Divi- ,; ional Officer, Masulipatam. ln his deposition, he had stated that the Divisional Manager was the competent authority for accepting the proposal for Rs. 50,000: Normally it took some t'ime for the Divisional Maoage19to accept. There was no communication from the DivisioQal Office \o the Branch Officer accpting the proposal.

He, further, stated that the amount would be transferred into t.he first premium register after the proposl was accepted and the risk covered.

He had produced the account books, namely; deposit account book and the first premium account .book of the Branch Office at 'Guntur. '

Sbri Brahmandrao Ramiah, Assitant Divisional anager .of the Ufe Insurance Corporation office at Madras was also examined as the second wit!IW!; s of the defendants.

He had further stated that the proposal form was S\'nt.from the office at Guntur to the Divisional Office at Masulipatam, and Ex: B-1. to B-4 and B-8 were sent in this connection.

He further stated that accord.ing to the financial powers Standing Order, it was the Divisional Manager who was competent to accept a proposal for Rs. 50,000 Ex. B-13 is the copy of the Standin.g Order. The purpose of review slip Ex. B4 was to enable the Divisional Officer to assess the risk and take a decision according to the deponent. In this connection we

i'lay refer Ex. B-14 .which is the Life Insurance Corporation of India's Proposal Review Slip .regarding proposal in the case of the deceased. The" endorsement therein of the assistant Divisional" Manager read as follows : •

"NOTES AND DECISION : may be accepted at 0.R."

WITH E.D.B.

Shri Jirahmandrao Ramiah had further stated that the papers were scrutinised by him in addition to the scrutiny by the concerned clerks.

He stated that the endorsement marked as Ex. B-14 was initialled by him. He further stated that the Jetiers 'DM' were a'lso written by him indicating that the papers should go to the Divisional Manager on Ex. B-4.

H., e reiterated that the order of acceptance would not be communicated to the party if all the formalities were not complied with ; this policy, he stated, was not accepted. When the acceptance was complete and when there wes no r, equirement necessary and if the full first instalment was

G •

lE.

SUPREME COD.RT REPORTS

[1984] 3 S.C.R. • in deposit, it would be adjusted towards premium amount, he stated.

In this connection. before the learned Trial Judge, "reliance was placed on the Life Insurance Corporation •f India Standing Order, 1960 (Financial Powers).

Chapter Ill of the Sta11\iing Order dealt with the powers of the different authorities for, inter alia, 'Underwriting aod Revivals of Policy'; The relevant portion of th~ said Standing Order read as follows :-

"Nature of P_ower

l. Underwriting and

Revivals:

(a) Standard

lives and reviva! on original terms

Authority Extent of Finaizcial power (up to and Including)

Section Head Supdt or J.O.

A.S.O.

A.D.M:

D.M.

Rs.

2,000 5,000 10,000 25,000 1,00,000

(Sum Proposed) ( do- ) ( -doj ( -do ) ( -do- )

Note: Proposalson standard lives for mor, e than Rs: 1,00,000

should be refercd to the Central Underwriting Section."

Learned Subordinate Judge by his judgment_ dated 19th f ]\!ovember, 1964 held that there was no concluded cqntract. He held . that as per" the pro1; pectus of Life Insurance Corporation oflndia the risk under the Corporation policy commenced on th~ date of receipt of the first permium in full or the date of acceptance which ever was later and the scconJ instalment . of the premium falls due

 0~ a date calculated from such date of commencement of risk.

Learned Trial Judge was of .the OJ1inion that the documents in this case. coupled with evidence on. behalf of the Appellant-Corporation

estblished that the proposal sent by the deceased was for SOfl\e reason

, -1~

• L.kC. v. R.V. l(AMBA (Mukharji, J.) 357

<0r other not accepted by the Divisional Office by the time the decea-

$ed had died. The Trial Court therefore held that there was no -concluded valid insurance contract between the deceased and the Corporation. The Trial Court further noted that it was significant 1hat the case set out in the plaint and the basis of the claim made in the notices sent to the Corporation was not that the proposal was as a matter of fact accepted by the Divisional Manager, on the other hand, cbim was that it should be. deemed to have been accepted .

Considering the evidence.and the averments, the Learned Su'bordinate Judge came to the con.clusion that the accounts do not show the ., position alleged by the plaintiffs-respondents that the amounts paid

were appropriated towards the premium and the Trial Court was of ·, the opinion that encashing of the cheques and the want of aqy further action. to be done by the deceased did not themselves create a contract of insurance between the deceased and the Corporation.

The Trial Court was ofihe opinion that the proposal must be accept- .ed by the Divisional Manager and that alone cquld give rise to a valid contr.act of insurance which never happend in this case. The Trial Court further expressed the view that the other averments in the claim that the deceased was assured and told by the local agent .and the field officer of the Corporation that the payment of the first premium would . amount to the acceptance of the proposal were . . not established-and even if such a representation was made, that did not alter the position as under.the rules the payment of the premium -could nev'!!r amount. to the acceptance oft.he proposal if the proposal was not otherwise accepted. In the result, the suit filed by the respondents-plaintiffs was dismissed with costs. Being aggrieved by

- the said decision, the plaintiffsrespondnts field appeal in the High.

Court. The appellants before the High Court also filed civil miscellaneous petition praying that in the circumstances. stated in the affidavit filed therewith the High Court might be pleased to direct the Life Insurance Corporation to produce certain documents viz., proposals, review slips and proposal dockets and the connected ,

papers of th" present case and statements furnishea by the Divisional Office to the Zonal Office showing the new, business in the year 1960 and proposal register work of Divisional Office for the year 196Q.

• .

The High Couri. directed the Life. Insurance Corporation to produce the documents referred to above. The High Court by its judgment dated 14th April, 1970 held after conidering the stad

ing order Ex. B-13 and the various documents produced for .the ; first time on record that there was acceptance of proposal and like

0 '

• B

• B

• 35&

SUPREME COUKT 11.EPCRTS [I 984] 3 s.c.R.:

-Other contracts, the contract of insurance was complete by offer ancl . acceptance, , In coming to --this:.£anclusiori tJie High Court relied'. on the alleged-adjustment and the 'endorsement of the review slit> recommending that the proposal "may .be accepted" made on therelevant file by the Assistant Divisional Manager. Relying on certain other documents which were called for, for the first 'time by the. High Court relating to certain other cases where only the- . Assistant Div.isional Manager inade similar endorsement, the Higl:J

.Coµrt came; to the condusioll that there was a valid contract. The . High Court was of.the view that the plea that Divisional Manager

was the only authority to accept had not been categorically taken i~ the written statement filed on behalf of the Corporation. On theother hand, there was a general statement that there was no conclu- . ded contract, The High Court was of the view that having regard!

to the conduet of the parties, there was a concluded contract.. The High Court took the view that Ex, B-13 dealing. with Chapter !Hof the Financial Powers did not categorically deal with the aceptance of proposals. The High Court was of the view that the Corporation had not filed any evidence of any order prohibiting other"officers one step below in rank, in this case the Assistant Divisional Manager, to exercise the power of Divisional Manager .

. In our opinion, the High Court was in error in appreciating the facts and theevidence in this case.

We cannot accept the High Court's criticism with the avermenl in tbe written statement that there was not sufficient pleading that there as no con'cluded •

contract and non-acceptance of the proposal was not sufficient 'averment that the Divisional Manager was the only competent authority to accept 1be proposal. The. High Court, in our opinion. was also wrong in its view about the powers of the differenl autho- . rities under Chapter JII of the Standing Order, 1960 dealing with the financial .powers. Indeed there was. no evidence that the Assistant Divisionai Manager had accepted the proposal on the contrary he in bis deposition as we have indicated before had stated otherwise. He bad stated that the purpose of review slip was to enable the Divisional Manager to asses the risk and take a decision.· He had never stated that he bad taken a decision to accept the proposal. The allegaiion that there was assurance on behalf of the field officer and local agent to the deceas<;_d that the payment ;, r first premium would amount to the acceptance 6f the proposal can.not ~!so be accepted • firstly because factually it was no.t proved and secondly becaus~

..,.

L.I.C. v. R.V K,\MBA (Mukharji, J.) 359

there was no evidence that such could have been the deposition in A 1aw.

When an insurance poEcy , becomes effective i1 well-settled by the authorities but before we note the said authorities, it may be 'Stated that it is clear that the expression 'underwrite" sig!1ifies "accept liability under'.

., The dictionary m; aning also indicates that. . (See in.this connection The Concise Oxford Dictionary Sixth Edition p. 1267.)

It is true that normally.the expression "underwrite" is used in Marine insuranc~ but tl1e expres.sion used in Chapter III of t1'e Financial powers of the Standing Order in this case specifically used 1he expression "ii°nderwriting and revivals" of policies in case of'

Life Insurance Corporation and stated that it was the Divisional Manager who was competent to underwrite policy for Rs 50,000 and aj>ove. ' ·

The mere receipt and retention of premium until after the .death of the applicant or the

mere preparation of the policy document is ot acceptance. Acceptance must be signified by some :act or acts agreed on by the parties or from which the law. raises

n presumption of acceptahce. ·

See in this connection the statement of law in Corpus Juris SecundJlm, Vol. XLV page 986 wherein it has bee, n stated as:-

. "The merneceipt and retention of premiums until . after the death of applicant does not give rise to a contract, alth9ugh the circumstances may be sue!\ thatapproval could be inferred from retention of the premium. The mere execu- · .tion of the polic; y is not an acceptance ; an acceptance, tp be , complete, must be communicated to the offeror, either direi:t- 'ly, or by some definite act, such as placing the contract in the mail. The test is no! intention alone. When the application so requires, the. acceptance must be evidenced by the signature of one of the company's executive officers."

Though in certain human relationships silence to a proposal H might convey' acceptance but in the case of insurance proposal ·

silence does not denote consent and no binding contract arises until.

SUPREME COCRT REPORTS

(1984) 3 S.C.R,

the peron to whom an offer js m; de says or does something to . . signify his acceptance. Mere delay in giving an. answer caiinot be

construed as an acceptance, as, primafacie, acceptance must be

communicated to the offerer. The general rule is that the contract of insurance will be concluded only when the party to whom an offer bas been made accepts it unconditionally and communicates his acceptance to the person making the offer. Whet.her the final acceptance is that of the assured or insurers, however, depends simply on ' the 'YaY in which negotiations for an insurance have progressed. .

See in . this connection statement. of law in M acGil/frray & Parkington on Insurance Law, Seventh Edition page 94 paragraph its.

Reference in this connecfion may be_ made to the Statement of law in Ha/sbury's Laws of England 4th Edition in paragraph- 399 at

pae 222.

•.' 1> Having regard to the clear position in law about acceptance

f insurance ptoposal and the e\iiden'ce on record in this case, we are, therefore, of tbe opinion that the High CQurt was in error in. -coming to the conclusion that there was a concluded contract of

insurance between the deceased and the Life Insurance Corporation. and oh that basis reversing the judgment and the decision of the E _learned Subordinate Judge. -_ .

. . ' The appeal must, therefore, be allowed. We however record 1 that in view of the fact that sµch a long time has elapsed and further in view of the fact that principal' amount together with interest amounting to about Rs. 85,000/- have already been paid to the wife I' of the deceased and bis childern, •the Life insurance Corpbration in this case does not insist on .the full repayment of the sum paid and counsel on behalf oftbe Life Insurance.Corporation has stated that they would accept if half of what has been received by the respondents, namely principal together .with interest. is paid bck te> the Corporation. We order accordingly that the respondents wil~ G therefore pay back half of the actual 'amount rece!ved both of the principal together with interest within three months frorn this date. •

In the fcts and. c, ircumstances of the case there will be ne> order as to costs in this Court.

With the above observations, the appeal is allowed .

S.R .• Appeal al/owid •

-,...

. .

.... ·

UJ'E INSURANCE CORPORATION OF INDIA

RAJA VASIREDDY KOMALLAVALLI KAMBA & OTHERS

f.\1. BALAKRISHN!' ERADI

Vasireddi Chandr-a Dhara. Prasad

CIVIL APPELLATE JURISDICTION

YS Chitale

V. G. Shanker

KL.Hathi

Sadhana

DK Chhaya

MK Arora

H. Wahi

riJhnamoorthi Iyer

K~. Choudhry

KS. Choztdliary

SABYASACHI MUKHARJJ

High Conrt of Andhra Pradesh

Raja Vasireddi Chandra Ohara Prashad

Raja Vasireddi Chandra Ohara Prasad

Divisional Manager, Masulipatam Branch

10th January, 1964

C. Sambasiva Rao

Masulipatam

Life Insurance Corporation of India

R.V. Bhupa\a

Prasad

R.V. KAMBA

Guntur

Brahmandrao Ramiah

Madras

Jirahmandrao Ramiah