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Chairman-cum-Managing Director, Fertilizer Corporation of India Ltd. vs. Rajesh Chandra Shrivastava and Ors.

Civil Appeal · 2022 INSC 403Decided 7 Apr 2022
Civil Appeal No. 2260 of 2022
Hemant Gupta · V. Ramasubramanian

Background

In 2000, while pay-revision litigation by employees of two sick public-sector fertiliser companies was pending before the Supreme Court, the Court ordered an interim, ad hoc monthly payment to the employees "without prejudice" to the final outcome, expressly stating it was not to be treated as a precedent. In 2003, the employees' underlying claim for a full pay revision was ultimately dismissed, and shortly before that, most employees had already exited under a Voluntary Separation Scheme when the companies' fertiliser units were shut down. Many employees then claimed before the gratuity Controlling Authority that the ad hoc interim payment should count as part of their "wages" for calculating gratuity, and several authorities and the Allahabad/Calcutta High Courts had accepted this view (partly relying on an earlier Supreme Court order favouring one individual employee, Kashi Prasad Tripathi), prompting the companies' appeal.

Decision Breakdown

The Supreme Court held that "wages" under Section 2(s) of the Payment of Gratuity Act means only what is earned in accordance with the actual terms and conditions of employment, not an ad hoc, interim, without-prejudice payment made purely as a stop-gap measure during ongoing litigation. Since the Court's own 2000 and 2003 orders had explicitly said the ad hoc payment was without prejudice and not a precedent, and the employees' underlying claim for a permanent pay revision was ultimately rejected, that ad hoc amount could never form part of "wages" for gratuity purposes. The Court clarified that its earlier order in the individual Kashi Prasad Tripathi case had not actually decided this legal question, so it did not bind this larger batch. The appeals were allowed and the orders in favour of the employees were set aside, though the Court also protected already-paid employees by directing no recovery be made from them, given the passage of time and that some had since died.

Lesson Learnt

An interim payment made by a court "without prejudice" and "purely as an ad hoc measure" during pending litigation does not automatically become a permanent employment benefit. If the underlying claim is ultimately lost, that interim relief cannot be treated as part of an employee's regular wages or salary for statutory calculations like gratuity.

Official source (sci.gov.in)View Judgment (PDF)

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