PETITIONER:
UNION OF INDIA & ANOTHER
Vs.
RESPONDENT:
DHRANGADHRA CHEMICAL WORKS & ANR.
DATE OF JUDGMENT16/12/1976
BENCH:
GOSWAMI, P.K.
FAZALALI, SYED MURTAZA
CITATION:
1977 AIR 720 1977 SCR (2) 479
1977 SCC (1) 497
ACT
Additional Emoluments (Compulsory Deposit) Act, 1974--S.
2(b) Explanation l--Scope of
HEADNOTE
Section 2(b) of the Additional Emoluments (Compulsory
Deposit) Act, 1974 defines additional dearness allowance to
mean such dearness allowance as may be sanctioned from time
to time after the appointed day over and above the amount
of dearness allowance payable in accordance with the rate in
force immediately before the date from which such sanction
of additional dearness allowance is to take effect. Expla-
nation I to the clause states that where payment of dearness
allowance is linked to the cost of living Index any auto-
matic payment after the appointed day of dearness allowance
in consequence of any rise in such cost of living index or
in consequence of any change in such other factor shall,
notwithstanding the provisions of this clause, be deemed to
be the additional dearness allowance.
Dearness allowance was paid to the employees of the
respondent at the rate of quarterly average cost of living
index for the relevant quarter. The rate of dearness allow-
ance for one quarter e.g. the first quarter of 1974 was paid
on. the basis of the average cost of living index for the
months of July---September, 1973. For the quarter July-
September, 1974 there was a rise in the cost of living
index and consequently there was a rise in the dearness
allowance payable to the employees. In a writ petition
under art. 226 of the Constitution the employees contended
that the increased dearness allowance payable for the quar-
ter July-September, 1974 was as a result of rise in the cost
of living index between January-March, 1974 which was
before the appointed day in July 6, 1974 and, therefore, no
additional dearness allowance was deductible under the Act.
The High Court granted the writ.
Allowing the appeal,
HELD: The High Court was wrong in its view that the rise
of cost of living index should be after the appointed day.
The nexus, for the purpose of the explanation, is with the
payment after the appointed day and not with the rise in the
cost of living index. There is nothing in the Explanation
to warrant the conclusion that rise in the cost of living
index should be after the appointed day. What is to be
after the appointed day is any automatic payment of dearness
allowance in consequence of any rise in such cost of living
index and not that any rise in the cost of living index
should be after the appointed day. [482B: 481H]
When D.A. is linked to the cost of living index, actual
determination of the D.A. takes place after the index is
published and known. The index, therefore, is always of a
past period by the yard-stick of which D.A. is adjusted.
This being the concept about linkage of D.A. to cost of
living index. Explanation I makes it clear that when pay-
ment of D.A. is linked to cost of living index any automatic
payment after the appointed day of D.A. in consequence ’of
any rise in the cost of living index shall, notwithstanding
the provisions of this clause, be deemed to be the addition-
al D.A. [481G]
JUDGMENT
CIVIL APPELLATE JURISDICTION: CIVIL APPEAL NO. 691 of 1976.
(From the Judgment & Order dated the 16th December 1975
of the Gujarat High Court in Special Civil Appln. No. 572 of
1975).
G.L. Sanghi and Girish Chandra, for the Appellants.
480
V.M. Tarkunde, K.L. Hathi and Mrs. P.C. Kapur, for
respondent No. 1.
The Judgment of the Court was delivered by
GOSWAMI, J.--This appeal on certificate is from the
judgment of the High Court of Gujarat. The appellants 1 and
2 are respectively the Union of India and the Regional
Provident Fund Commissioner. Dhrangadhra Chemical Works
Kamdar Sangh (hereinafter to be described as the union) is
the first respondent. The second respondent is Dhrangadhra
Chemical Works (hereinafter to be described as the
employer).
With respect to the dearness allowance (D.A.) of the
workers under the employer there was a reference No. 70/70
before the Industrial Tribunal at Ahmedabad. The parties
arrived at a settlement of the said industrial dispute and
an award was passed in terms of the settlement. According to
the award the employer was to pay D.A. to its employees at
the rate of the quarterly average cost of living index as
settled by the Simla Bureau, popularly known as "All India
Consumers Price Index" for the relevant quarter. Thus for
the ’months of January, February and March, 1974, the rate
of D.A. was on the basis of the average cost of living index
for the months of July, August and September 1973 as pub-
lished by the said Bureau and this was to follow for every
quarter. It is the accepted position that for the months of
April, May and June 1974 the D.A. worked out at Rs. 78/- per
month, but for the quarter. commencing on 1st July, 1974,
and ending on 30th September, 1974, it worked out at Rs.
88.50 per month. In other words, it was an agreed position
between the union and the employer that the rate of D.A.
payable to all the workers from 1st July, 1974, was at the
rate of Rs. 88.50 per month.
With effect from 6th July, 1974, The Additional Emolu-
ments (Compulsory Deposit) Ordinance 1974 came into force.
This Ordinance was replaced by The .Additional Emoluments
(Compulsory Deposit) Act 1974 (Act No. 37 of 1974) (briefly
the Act) and the Act is deemed to have come into force on
the 6th day of July 1974.
We have already made a detailed reference to the aim and
object of the Act and also dealt with the material provi-
sions thereof in dealing with a similar question in Civil
Appeal No. 690 of 1976 in which we have delivered our judg-
ment to-day(1). It is, therefore, not necessary to repeat
those observations here.
The short question that arises in this particular appeal
turns on the Explanation-I to section 2(b) of the Act. We
will, therefore, read that provision:
"2(b) ’additional dearness allowance’
means such dearness allowance as may be sanc-
tioned from time to time, after the appointed
day, over and above the amount of dearness
allowance payable in accordance with the rate
in force immediately before the date from
which such sanction of additional dearness
allowance is to take effect.
(1) [1977] 2 S.C.R.472.
481
Explanation-I. Where payment of dearness
allowance is linked to a cost of living index
or any other factor, any automatic payment,
after the appointed day, of dearness allowance
in consequence of any rise in such cost of
living index or in consequence of any change
in such other factor shall, notwithstanding
the provisions of this clause, be deemed to be
the additional dearness allowance."
It is clear under section 2(b) that additional D.A. has
to be sanctioned after the appointed day. "Sanctioned" is
the heart of the definition clause. Since additional D.A. is
defined to mean such D.A. as may be sanctioned from time
to time after the appointed day, Explanation-I ’to the
definition is inserted to. deal with a situation to avoid
any controversy about the sanction while there is an auto-
matic rise in D.A. linked to a cost of living index. Where
D.A. is linked to a cost of living index any automatic
payment, after the appointed day, of D.A. in consequence of
any rise in such cost of living index shall be deemed to be
the additional D.A. In the absence of Explanation-I there
would have been scope for controversy whether additional
D.A. which is paid automatically with the rise in the cost
of living index, as agreed upon, can be said to be D.A.
sanctioned from time to time. Such a controversy is set at
rest by insertion of Explanation-I which is a deeming
clause.
The question that arises for consideration in this
appeal is whether -the rise in the cost of living index has
also got to be after the appointed day. The union contends
that the D.A. of Rs. 88.50 which is payable from 1st of
July, 1974, for the quarter--1st July, 1974 to 30th Septem-
ber, 1974---is an pursuance of the rise of cost of living
index between January to March 1974 which is prior to the
appointed day, namely, 6th July, 1974. It is, therefore,
submitted that no additional D.A. is deductible under the
Act. The High Court has accepted the contention of the union
and allowed the application under Article 226 of the. Con-
stitution granting a Mandamus restraining the employer from
deducting additional D.A. from the emoluments of the em-
ployees. The High Court also granted certificate to appeal
to this Court.
it is common knowledge that when D.A. is linked to a
cost of living index, actual determination of the D.A. takes
place after the index is published and known. The index,
therefore, is always of a past period by the yardstick of
which D.A. is adjusted. This being the concept about link-
age of D.A. to cost of living index, Explanation-I makes it
clear that when payment of D.A. is linked to a cost of
living index any automatic payment after the appointed day
of D.A. in consequence of any rise in the cost of living
index shall. notwithstanding the provisions of this clause,
be deemed to be the additional D.A.
The non obstante clause in the Explanation takes note
of the definition clause where sanction after the appointed
day has been mentioned. Explanation-I therefore, plays its
role, not withstanding whatever is stated in section 2(b),
the definition clause. We do not find anything in Explana-
tion-I to warrant the conclusion that rise of the cost of
living index should be after the appointed day. What is to
be after the appointed day is "any automatic payment of D.A.
in consequence of any
482
rise ...... "and not that any rise in the cost of living
index should be after the appointed day.
We are, therefore, unable to agree with the High Court
that the rise of cost of living index also should be after
the appointed day. It is sufficient for the purpose of
Explanation-I if payment of D.A., in consequence of rise of
cost of living index, takes place after the appointed day on
account of rise in the cost of living index even prior to
the appointed day. The nexus for the purpose of Explana-
tion-I is with the payment after the appointed day and not
with the rise in the cost of living index. The specified
percentage of additional D.A. which is 50% of the rise,
being the difference, between Rs. 78/- and Rs. 88.50 is,
therefore, deductible under section 6(2)(b) of the Act and
the High Court was not correct in holding to the contrary.
The appeal is allowed and the judgment of the High Court
is set aside. There will be, however, no order as to costs.
P.B.R. Appeal
allowed.
483