JAGDISH PRASAD SAINI & ORS VERSUS STATE OF RAJASTHAN & ORS

JAGDISH PRASAD SAINI & ORS VERSUS STATE OF RAJASTHAN & ORS

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले

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 REPORTABLE

IN THE SUPREME COURT OF INDIA

 CIVIL APPELLATE JURISDICTION

 CIVIL APPEAL NO. OF 2022

 [@ SPECIAL LEAVE PETITION (CIVIL) NO. 16813 OF 2019]

JAGDISH PRASAD SAINI & ORS. ...APPELLANT(S)

VERSUS

STATE OF RAJASTHAN & ORS. ...RESPONDENT(S)

J U D G M E N T

S. RAVINDRA BHAT, J.

1. Special leave granted. With consent of counsel for the parties, the appeal

was heard finally. The appeal is directed against a judgment and order of the

Rajasthan High Court, Jaipur Bench,1 dismissing the appellant’s application,

seeking enforcement of this court’s previous judgment.2

2. The appellants were appointed against sanctioned posts by the fourth

respondent (a senior secondary school, established and controlled by the fifth

respondent trust, hereafter referred to collectively as the “establishment”) in

1993. They continued to work uninterruptedly in that establishment on a regular

basis. The establishment was recipient of grant-in-aid from the State of Rajasthan

(hereafter, “State”). By a unilateral resolution dated 5

th November 2008, the

managing committee of the establishment decided to discontinue receipt of grantin-aid from the State with effect from 1st April 2008. Accordingly, the State by

1 Dated 26th April 2019 in SBWMA No. 357/2017

2 Order dated 19th July 2016 in Civil Appeal No 6601-6603 of 2016

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an order dated 28th December 2012 ceased to grant aid with effect from 1st March

2012.

3. In the meanwhile, the State had framed and brought into force the

Rajasthan Voluntary Rural Education Service Rules, 2010 (hereafter, “2010

Rules”) with the objective of providing security to the employees working in

aided institutions, and to absorb them in the State’sservice. The appellants sought

their absorption with the State in accordance with the rules, by unavailingly

representing in this regard. Finally, they were driven to file writ petitions before

the High Court. The State had, pursuant to the rules framed by it, absorbed other

employees and teachers from aided institutions, but denied this benefit to the

appellants.

4. The appellants writ petitions were clubbed with several other petitions and

disposed of by the High Court, refusing to direct the State to absorb these

employees. The employees, including the appellants, unsuccessfully sought

review of those orders; which was rejected on 29th November 2013. The

appellants thereafter approached this court by petitions for special leave to appeal

questioning the orders of the High Court.

5. By its final order of 19th of July 2016, this court set aside the denial of

absorption of the appellants. The court directed as follows:

“..We are therefore convinced that the said eleven teachers having been

in the service of the school management in the aided posts and were in

receipt of such aid from the state government, right from the date of

their entry into service till the aid came to be discontinued in 2008, only

at the instance of the school management, which has now been restored

pursuant to the orders of this court, the state government can be

directed to pass necessary orders for their absorption applying the

2010 rules as from the date such rules came into effect. We therefore

set aside the orders denying such absorption and remit the matter back

to the respondent number one-state government to consider the claim

of the eleven aided teachers for their absorption as from the date when

the 2010 rules came into effect and such orders shall be passed within

one month from the date of receipt of a copy of this order.

After passing such orders of absorption, it is needless to state that

whatever salary that fell due and payable to the said eleven teachers

for the past period i.e. from 23.3.2008 shall be restored in the manner

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such aid is to be granted prior to the coming into force of the 2010 rules.

In other words, such aid is to be sanctioned to an extent of 70% and

30% to be borne by the school management, such calculation shall be

made, and the extent to which aid is to be sanctioned shall be granted

up to the date by which the order of absorption is passed on thereafter

the full salary payable for an absorbed teacher in the state service shall

also be calculated and sanctioned by respondent No 1/ state

government.

On such orders being passed, we also direct the school management to

take necessary steps for praying the 30% of their liability from March

2008 up to date of the absorption of the eleven teachers, as per the

orders to be passed by the state government.

We permit the school management to make such payment of 30% to the

eleven teachers in easy instalments by negotiating with the concerned

teachers in order to ensure that sudden huge financial liability is not

cast on the school management so that the running of the school for the

benefit of the school going children in that location."

******

We also direct the school management to submit a statement of

calculation as regards the salary which was actually disbursed to the

aided teachers as well as non-aided teachers from the month of April,

2008. The school management shall separately prepare a statement of

calculation as regards the salary paid to the aided teachers and

forward it to the state government with proof of payment in order to

enable the State government to comply with our directions with regard

to the payment of salary payable up to the date of absorption. As far as

revision in the payment of salary is to be granted, the same shall also

be prepared and appropriate order be passed by the state government.

Such payment shall also be effected positively by the school

management.”

6. After this order, in September 2016, the establishment moved an

application seeking directions from this court. The application contended that the

establishment had to pay the 11 aided employees, (i.e., the appellants) to the tune

of ₹ 57.68 lakhs, and privilege leave salary to the tune of ₹ 36.20 lakhs. The

application also produced a chart of calculation of gratuity and leave encashment.

This application was not allowed. Contemporaneously, the appellants also filed

contempt proceedings, i.e., C.P. No (Civil) 640 – 642/ 2017, in the disposed of

Civil Appeal Nos. 6601-6603 of 2016. This court by order of 6th March 2017,

allowed the appellants to withdraw the contempt petitions, with liberty to move

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the High Court for enforcement of orders of this court. In these circumstances,

the appellants moved the High Court contending that the orders of this court had

not been properly complied with, to the extent that they had not been paid

privilege leave encashment and gratuity amounts.

7. The High Court by the impugned order rejected the applications preferred

before it on the ground that since the salary required to be disbursed had in fact

been paid to the appellant employees, there was no cause to pursue the matter

further. The High Court was of the opinion that neither gratuity nor leave

encashment was covered by the expression “salary”, even under Rule 10 of the

2010 Rules or under the Rajasthan Non-Government Educational Institutions

(Recognition Grant-In-Aid and Service Conditions, Etc.) Rules, 1993 (hereafter,

“1993 Rules”).

8. The aggrieved appellants have therefore approached this court. It was

contended on their behalf by Mr Deepak Nargokar, learned senior counsel, that

the expression “salary” included both components, i.e., gratuity, as well as leave

encashment. It was pointed out that one of the original appellants who approached

this court, was in fact paid gratuity as well as leave encashment by the respondent

establishment. It was also argued that under Rule 5 of the 2010 Rules, employees

were entitled to leave encashment and gratuity benefits from private institutions.

9. The learned senior counsel next relied upon the averments made in the

application by the management establishment, especially para 13(6), filed in this

court3

. It was submitted that the management establishment clearly admitted to

its liability for payment of leave encashment dues and gratuity. In these

circumstances, the establishment could not deny those liabilities. He also relied

upon the chart produced by the establishment management which specifically set

out the gratuity and leave encashment amounts which all the 11 employees were

entitled to, according to it. He also relied upon the judgment of this court in State

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In Civil Appeal Nos 6601-6603 of 2016

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of Rajasthan and Anr. v. Senior Higher Secondary School, Lachhmangarh4 where

the court declared that leave encashment had, “to be read and understood with

the definition of the word salary”.

10. Learned senior counsel for the State, Dr. Manish Singhvi argued that in

terms of Rule 5 (xi) of the 2010 Rules, every employee had executed an

undertaking that she or he accepted all terms and conditions of service prescribed

by the 2010 Rules. Furthermore, the concept of ‘carry forward of balance of

privileged leave’ too was denied by Rule 5(viii) of the 2010 Rules. It was

submitted that in terms of Rule 5(viii), the employees could seek payment of leave

encashment of balance of privileged leave only from the private institutions. The

State, therefore, could not be fastened with the liability on that score. So far as

the question of gratuity liability was concerned, Dr. Singhvi relied upon the

judgment in Rajasthan Welfare Society v. State of Rajasthan5

and submitted that

by virtue of Rule 82 of the 1993 Rules, the employees of aided educational

institutions were entitled to gratuity under the Payment of Gratuity Act, 1972.

Yet, in terms of Rule 14 of the 1993 Rules, gratuity was not an approved

expenditure. As a consequence, this court held in no uncertain terms that gratuity

was not part of the recurring grant and that the State was not liable in that regard.

11. Mr. C.U. Singh, learned senior counsel appearing for the establishment,

submitted that the order of this court was explicit in its terms and that leave

encashment and gratuity could not be said to form part of “salary”. It was further

submitted that the example provided by the appellants, i.e., that one amongst them

(Mr S.S. Shekhawat, respondent no.8) was paid gratuity is a solitary instance

which per se could not cast liability without any corresponding obligation in law.

12. It was further submitted that privileged leave cannot be included within the

term salary which under the Rajasthan Non-Governmental Educational

4 State of Rajasthan and Anr. v. Senior Higher Secondary School, Lachhmangarh, 2005 (10) SCC 346

5 Rajasthan Welfare Society v. State of Rajasthan, 2005 (5) SCC 275

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Institutions Act, 1989 (Section 2(r)) means “aggregate of the emoluments of an

employee”. Learned counsel relied upon the judgment of this court in Senior

Higher Secondary School Lachhmangarh (supra) and submitted that

corresponding aid, therefore, has to be disbursed by the State Government, to

enable the payment of privileged leave.

13. So far as the gratuity was concerned, learned counsel relied upon a decision

of the Chhattisgarh High Court in Ambika Mission Boys Model School v. State of

Chhattisgarh6

and urged that the State was primarily liable to disburse the

gratuity of employees of aided institutions. It was also submitted that the

Chhattisgarh High Court had relied upon the previous judgment of this court in

Regional Provident Fund Commissioner v. Sanatan Dharam Girls Secondary

School & Ors7

, to hold that although aided institutions did not “belong” to the

Central or the State Government yet they were under the “control” of the State

under various ways. The judgment had further noted that the Payment of Gratuity

Act, 1972 had amended the definition of “employee” under Section 2(e) with

retrospective effect from 3

rd April 1997.

Analysis and Conclusions

14. Non-government educational institutions in Rajasthan are governed by the

Rajasthan Non-Government Educational Institutions Act, 1989 (hereafter “Act”)

and the rules framed. Section 2 (r) of the Act defines salary as “the aggregate of

the emoluments of an employee including dearness allowance or any other

allowance or relief for the time being payable to him but does not include

compensatory allowance”. Compensatory allowance, by Section 2 (d) means:

“(d) "compensatory allowance" means an allowance granted to meet

personal expenditure necessitated by the special circumstances in

which duty is performed and shall include a travelling allowance but

shall not include a sumptuary allowance nor the grant of a free passage

to or from any place outside India”.

6 Ambika Mission Boys Model School v. State of Chattisgarh, (2020) 2 CLR 177

7 Regional Provident Fund Commissioner v. Sanatan Dharam Girls Secondary School & Ors, 2007 (1) SCC 268

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15. Section 3 of the Act provides for recognition of grant-in-aid institutions;

Sections 4 to 6 of the Act provide for the eventuality of refusal of recognition,

withdrawal of aid and the remedies for the institution. Section 7 of the Act

onwards are regulatory provisions requiring audit, recruitment, orders of

termination of teachers, provision of tribunal for redressal of teachers’ grievances

regarding dismissal or termination, etc. Section 29 of the Act, which is relevant

for the present purposes, states as follows:

“29. Pay and allowances of employees.— (1) The scales of pay and

allowances except compensatory allowances with respect to all the

employees of an aided institution shall not be less than those prescribed

for the staff belonging to similar categories in Government institutions.

(2) Notwithstanding any contract to the contrary, the salary of an

employee of a recognised institution, for any period after

commencement of this Act, shall be paid to him by the management

before the expiry of the fifteenth day or such earlier day, as the State

Government may, by general or special order appoint, of the month next

following the month in respect of which or part of which it is payable:

Provided that if at any time the State Government deems it fit, it may

prescribe a different procedure for payment or salary and allowances.

(3) The salary shall be paid without deductions of any kind except those

authorised by the rules made under this Act or by any other law for time

being in force.”

16. The relevant provisions of the 1993 Rules are Rules 47, and, pertinently,

82. Rule 47 deals with privilege leave.8 Rule 82 is as follows:

8 47. Privilege Leave.- (1) Non-Teaching Staff - Members of the non-teaching staff whether temporary or

permanent, shall be entitled to privilege leave of 30 days in a calendar year. Fifteen days privilege leave shall be

credited to the leave account of the employee on 1st January and the remaining fifteen days on 1st of July, each

year subject to the total accumulation upto a maximum of 300 days.

(2) Teaching staff -

(a) Privilege leave is not admissible to the members of teaching staff, whether temporary or permanent, in

respect of duty performed in any calendar year, in which they avail themselves of the full vacation, except

to the extent indicated under clause (b) of this sub-rule;

(b) The teaching staff in schools and colleges shall be entitled to fifteen days/privilege leave in a calendar

year. The leave account shall be credited with fifteen days privilege leave immediately after expiry of

every calendar year, the unavailaed portion of the so credited privilege leave shall be qualified for carry

forward to the next year upto a maximum of 300 days.

(c) The teaching staff appointed during a calendar year shall be allowed privilege leave @ 1 1/4 days for

each completed month of his service immediately after the expiry of that calendar year subject to the

condition laid down in clause (b) above in proportion of 8:7 respectively;

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“82. Gratuity and Insurance.- (1) The employees of the Aided

educational institutions shall be entitled to Gratuity as admissible

under Payment of Gratuity Act, 1972 as amended. from time to time.

(2) The managing committee shall arrange for Group Insurance of its

employees under the respective scheme of Life Insurance Corporation

of India.”

17. In the present case, the appellants had to fight for their entitlements. The

State initially refused them the benefit of regularization. Their petitions for relief

were unsuccessful. Ultimately, this court, by its order, dated 19th July 2016,

directed their regularization. The court even initiated suo motu contempt

proceedings, after which the appellants were paid their salaries and arrears

according to the recommendations of the Pay Commission. However, the

appellants’ complaint of non-compliance with the respondent’s obligation to pay

leave encashment and gratuity for the period they were in the aided establishment

was not gone into. They were permitted to agitate that grievance before the High

Court. Upon their doing so, the High Court, by its impugned order, gave short

shrift to their argument, holding that since arrears of salary had been paid, nothing

more was needed to be done.

18. As far as leave encashment dues are concerned, the issue is no longer at

large. In Senior Higher Secondary School Lachhmangarh (supra) this court held

that “salary” under the Act, includes leave encashment. The relevant observations

are extracted below:

“19. The contention urged is that Section 16 refers to various

conditions of service including pay whereas Section 29(1) refers only

to 'scales of pay and allowances' and not the 'conditions of service'.

Learned Counsel submits that by implication, Section 29 excludes the

(d) The privilege leave admissible to such an employee in respect of any calendar year in which he is

prevented from availing himself of the full vacation shall be in such proportion of 15 days as the number

of days of vacation not taken bears to the full vacation. If in any calendar year the employee does not

avail the full vacation, fifteen days privilege leave will be admissible to him at the end of the vacation in

respect of that calendar year.

(e) Vacation may be taken in combination with or in continuation of any kind of leave under these rules

provided that the total duration of vacation and privilege leave taken in combination or in continuation

of other leave, shall not exceed the amount of privilege leave due and admissible to an employee at a time

under sub-rule (1) above.

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benefit of leave encashment. We are unable to accept the above

contention.

20. Section 16 confers a rule-making power on the State Government

to regulate recruitment and conditions of service including conditions

relating to qualifications, pay, gratuity, insurance, age of retirement,

entitlement of leave, conduct and discipline etc. of employees of aided

institutions. Section 16 has to be read and worked harmoniously with

Section 29 which directs maintenance of parity in the scales of pay and

allowances between employees of aided institutions and Government

institutions.

21. As we have held above the expression pay and allowances in Section

29 read with wider definition of the word 'salary' in Section 2(r) of the

Act has a very vide connotation. We have come to the conclusion that

the expression includes benefit of leave encashment which is nothing

but salary for the unavailed leave to the credit of the employee.

22. Section 16 confers rule-making power on the State Government to

regulate 'Conditions of service' of employees of aided institutions. The

Section specifically confers power to frame rules regarding entitlement

of leave. If leave salary is of kind a salary within the wide definition of

'salary' under Section 2(r), the rules to regulate conditions of service

of employees of aided institutions, must be so framed as to maintain

parity in conditions of service in that regard with employees in

Government institutions. That is the mandate of Section 29 of the Act.

The contention, therefore, advanced that subject-matter of entitlement

of leave encashment is covered by Section 16 of the State but is beyond

the purview of Section 29 of the Act, is fallacious and has to be rejected.

23. While construing the provision under consideration, it is to be

borne in mind that interpretation of a welfare legislation should be to

promote education. The service conditions of the employees of the

aided institutions are sought to be improved and brought at par with

those in Government educational institutions to maintain educational

standards. It has also to be borne in mind that our Constitution makers

have placed the field of education at a higher pedestal and granted it a

special status. Various provisions of the Constitution deal with the

aspect of advancement of education. The primary education has been

held to be a fundamental right in the decision of this Court in Unni

Krishnan, J.P. and Ors. v. State of Andhra Pradesh 1993 (1) SCC 645

and this aspect still holds the field despite the decision having been

overruled on some other aspects in T.M.A. Pai Foundation and Ors. v.

State of Karnataka and Ors. 2002 (8) SCC. To improve education,

various State Governments grant aid to educational institutions and, by

and large, teachers of aided private schools deserve to be treated at

par with teachers of Government institutions to the extent possible. The

provisions of these Acts deserve to be liberally interpreted in favour of

the teaching class except where statute may compel otherwise. A statute

of no other State has been brought to our notice where similar benefit

has been denied to the teachers of the aided institutions to improve

education. The service conditions of the teachers also deserve to be

improved.”

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19. This court is of the opinion that the aforementioned reasoning is binding,

and conclusive as regards entitlement of the appellants to claim leave encashment

benefits. However, the State had urged that by virtue of Rule 5 of the 2010 Rules,

the employees who were regularized could not claim these benefits. The 2010

Rules were framed in exercise of powers under proviso to Article 309 of the

Constitution. Rule 5, to the extent it is relevant, states as follows:

“5. Terms and condition for appointment of employees in Government

Service.—The regularly appointed existing employees in the No.-

Government Aided Educational Institutions who are working against

sanctioned aided post on the date of commencement of these rules shall

be appointed under the Rajasthan Voluntary Rural Education Service

on the following terms and conditions, namely :—

(i) The employee should possess the requisite educational and

professional qualification for the respective posts as per the relevant

service rules applicable to the Government servant of similar cadre.

(ii) The posts on which the employees shall be appointed in the

Government shall constitute a separate dying cadre for each category

of employees.

(iii) The appointed employees shall be posted only in the colleges/

schools, as the case may be, in the rural areas on the equivalent posts

specified in column number 2 of the Schedule. However, in case there

is no such equivalent post in the government, they shall be appointed

on other posts carrying the same pay scale of aided posts:

*************** **************

(vi) The salary of all the appointed employees shall be fixed on the basis

of the salary as drawn at the time of appointment as per the Sixth Pay

Commission with effect from the date they join in the government under

these rules. Those who are drawing salary in Rajasthan Civil Services

(Revised Pay Scale) Rules, 1998, Rajasthan Civil Services (Revised Pay

Scales) for Government College Teachers including Librarian and PTI

Rules, 1999 and Rajasthan Civil Services Revised Pay Scales for

Government Polytechnic College Teachers, Librarians and Physical

Training Instructors Rules, 2001 shall be allowed benefit of Rajasthan

Civil Services (Revised Pay) Rules, 2008, Rajasthan Civil Services

(Revised Pay Scales) for Government College teachers including

Librarian and PTI Rules, 2009 and Rajasthan Civil Services (Revised

Pay Scales) for Government Polytechnic College Teachers, Librarians

and Physical Training Instructors Rules, 2010 respectively with effect

from the date they join in the Government after appointment under

these rules.

(vii) No arrears on any account whatsoever, (including arrears of

salary, selection scale, Assured Career Progression or Career

Advancement Scheme) shall be paid by the State Government for the

period prior to the date of their joining in the Government after

appointment under these rules.

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(viii) Carry forward of the balance of Privilege Leave shall not be

allowed. Employees shall be free to get payment of encashment of

balance of P. L. from the respective grant-in-aid educational

institutions.

****************** ******************

(x) The period of service in the aided institutions shall not be counted

for payment of gratuity, The employees shall be free to obtain payment

of gratuity from the respective grant in aid educational institution.

(xi) Each employee shall be required to execute an undertaking, in

Form - II, that he/she voluntarily accepts all the terms and conditions

of service prescribed under these rules and agrees to serve in the

government educational institutions situated in the rural areas till

attaining the age of superannuation in the service of Government.”

20. Evidently, these rules were framed to enable the absorption of employees

and teachers of non-government aided institutions. What is relevant for the

purposes of this case is that by Rule 5(viii), carry forward of existing privilege

leave is denied; likewise, the period of service in aided institutions is not to be

reckoned for the purpose of gratuity under Rule 5(ix). Every employee had to

furnish an undertaking in the prescribed form to accept the terms and conditions.

Ordinarily no public employer can be faulted in imposing pre-conditions before

it recruits an employee. However, such conditions cannot be arbitrary, or so

onerous as to be unconscionable. In the opinion of this court, the condition in

clause (viii) of Rule 5 i.e., carry forward of balance privilege leave, is barred and

requiring employees to seek encashment from their previous employer, i.e., aided

institutions, is an arbitrary and unconscionable condition, which cannot be

enforced. Speaking that such conditions are enforceable, this court, recently, in

Pani Ram vs. Union of India & Ors.

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after quoting the observations in Central

Inland Water Transport Corporation Limited & Anr. V Brojo Nath Ganguly &

Anr10 held as follows:

23. “….Right to Equality guaranteed Under Article 14 of the

Constitution of India would also apply to a man who has no choice or

rather no meaningful choice, but to give his assent to a contract or to

sign on the dotted line in a prescribed or standard form or to accept a

9 Pani Ram vs. Union of India & Ors, 2021 SCC OnLine SC 1277

10 Central Inland Water Transport Corporation Limited & Anr. V Brojo Nath Ganguly & Anr (1986) 3 SCC 156

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set of Rules as part of the contract, however unfair, unreasonable and

unconscionable a Clause in that contract or form or Rules may be.”

21. This court had categorically ruled, in Senior Higher Secondary School

(supra) that leave encashment is part of salary. In the scheme of the 1993 Rules,

the assessment of, and determination of the extent of, aid to be granted to any

institution, is provided by Rule 13. What forms part of the approved expenditure

that would be the content of aid, is provided by Rule 14. In the present case, the

management establishment was recipient of 70% aid, in the form of grant. In these

circumstances, the State cannot shrug its responsibility to shoulder its part of the

responsibility to pay the appellants the share of leave encashment benefits, and

hide behind either Rule 5 (viii) or the undertaking executed by them. The

appellants are held entitled to privilege leave entitlement benefits. Such benefit

shall be calculated from the date they entered the service of the establishment till

the date of their absorption, by the State, in 2016. The State shall pay the benefits

due to the extent of 70%, and the balance 30% shall be payable by the

management establishment.

22. On the issue of gratuity, again, the question of liability has been

conclusively settled. Although the management relied on a Chhattisgarh High

Court decision Ambika Mission Boys Model School (supra), this court is of the

opinion that it cannot be construed as an authority, because the court in that case

analysed the provisions of the Payment of Gratuity Act, 1972, as amended in

2009. However, in the present case, the scheme of the 1993 Rules, which

contained the conditions of grant, categorically cast the liability to pay gratuity

on the employer, i.e., the aided establishment, i.e., the fourth, fifth and sixth

respondents in this case. Furthermore, Rajasthan Welfare Society (supra) is an

authority, in that it considered the effect of the 1993 Rules, and held that it is the

management of the aided institution which has to bear the liability towards

payment of gratuity:

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“7. Rule 10 provides for general conditions governing grant-in-aid. It

inter alia, provides that every institution which applies for grant-in-aid

shall be deemed to have accepted its obligation to comply with the

conditions laid therein, one of it being that the Management shall

appoint teachers and other staff and shall follow the conditions of

service, as laid down in the Rules. Rule 11 deals with the procedure for

grant-in-aid. Rule 13 deals with the assessment of annual recurring

grant. In, inter alia, provides that annual recurring grant will be given

on the basis of estimated expenditure of the current year and be subject

to adjustment from the grant payable in the next year. It also stipulates

that the approved expenditure shall be arrived at according to the Rules

and such other instructions that may be issued from time to time. Rule

14 deals with approved expenditure and to the extent relevant for the

present case reds as under :

Rule 14. Approved Expenditure- Approved expenditure referred to in

Rule 13 above, shall related to the following items only- All the items

from (a) to (v) mentioned below will form component 'A' of the

admissible items of the expenditure.

(a) Actual salary, and provident fund contribution not exceeding 8.33%

in respect of teaching and non-teaching staff.

(b) to (v)......."

8. Note 2 appended to Rule 14 is relevant for the present purposes and

reads thus :

"Note - 2. Charges on account of contribution made by the Institution

to a pension fund or a gratuity scheme or on account of the pension or

gratuity paid to former teachers are ordinarily not admitted for the

purpose of grant-in-aid unless the Rules on the subject are approved by

Government;

Provided that in the case of staff obtained on lent services from any

State Government or Government of India, pension and leave salary

contribution shall be allowed as approved expenditure."

9. Rule 82 provides that the employees of the aided educational

institution shall be entitled to gratuity as payable under the Payment of

Gratuity Act, 1972, as amended from time to time.

************ *********** ************

14. The gratuity cannot be termed to be an emolument for the time being

payable to the employees so as to come within the definition of salary

defined in Section 2 (r) of the Act. Further, Rule 14 uses the word

'actual salary'. Be that as it may, it seems clear the non-recurring

payment of this nature cannot be included in the definition of salary.

Gratuity is payable at the time of retirement/termination of the

employment. Reliance on the decision of the case of Metal Box

Company of India Limited v. Their Workmen (1969) I LLJ 785 (SC) can

render little assistance to the appellant. It is a case under Payment of

Bonus Act. It was only dealing with accountancy principles.

Observations were made that an estimated liability under the gratuity

schemes even if it amounts to a contingent liability and is not a debt

under the Wealth Tax Act, if properly ascertainable and its present

value is fairly discounted, is deductible from the gross receipts while

preparing the profits and loss account. In trading circles or in rule or

direction in the Bonus Act, there was no prohibition from such a

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practice. The question in that case was whether while working out the

net profits the trader can provide from his gross receipts his liability to

pay a certain sum for every additional year of service which he receives

from his employees. It was answered in affirmative. If such liability was

properly ascertainable, it was possible to arrive at a proper discounted

vale. This decision, in our view, is not relevant to determine the point

in issue in the present case.

15. Further, gratuity cannot be included in the approved expenditure

as under Rule 9 the State Government can sanction the grants under

four Heads provided therein and gratuity does not fall under any one

of them. It is not claimed that the gratuity falls under Heads 2 to 4. The

Head No. 1 is 'maintenance or recurring grant'. Admittedly a gratuity

cannot come under the category of maintenance. It is also not a

recurring grant as already noticed hereinbefore. It is, thus, clear that

payment of gratuity cannot come under any of the four categories

mentioned in Rule 9.

16. In view of the aforesaid, the gratuity within the meaning of the Act

and the Rules cannot form part of recurring grant. It is not includable

as part of approved expenditure for the purposes of computing the

amount of grant payable to the purposes of computing the amount of

grant payable to the appellant. In this view, communication dated 26th

May, 1994 of Government of Rajasthan to the effect that the Rules do

not provide for grant-in-aid on amount of gratuity, the same being not

included in the approved expenditures, cannot be held to be illegal.

This will, however, not affect the rights of the employees to get the

gratuity from the concerned institution.

17. Before parting, we wish to note that if representations are made by

aided Non-Government Educational Institutions, the State Government

would consider sympathetically the question of the gratuity amount

payable to the employees being taken into consideration for the purpose

of computing the amount of grant-in-aid. We, however, clarify that

pending making of such representation and its consideration, the

payment of gratuity to the employees shall not be delayed.”

Neither has Rule 82 changed, nor has any other material been brought to the

notice of the court, to say that the management, i.e., respondent nos. 3-7 are

absolved of their liability to pay gratuity, upon termination of their relationship

with the appellants as their employers. Rule 82 is a condition of grant, which

meant that the management establishment was conscious and aware of its liability

when it applied and was granted aid, under the 1993 Rules. Therefore, it cannot

escape its liability on that score.

23. In view of the above discussion, it is held that with respect to leave

encashment, the State and the respondent nos. 3 to 7 are liable to pay the

appellants, in the ratio of 70:30 respectively. The respondent State shall, within

15

four weeks from today, determine the extent of entitlement of each appellant, and

communicate the extent of amount payable by the management establishment

(respondent nos. 3 to 7), to the appellants. These amounts shall be paid by all the

respondents, within six weeks from today. The respondent nos. 3 to 7 shall also

calculate and pay the amount of gratuity, to the appellants (on the basis of their

initial date of entry in the school, till the date of order of absorption, by the

respondent State), within six weeks from today. Since both sets of respondents

contested their liability and denied them to the appellants, the amounts payable

to the appellants shall also carry interest, at the rate of 10% from the date(s) of

their entitlement, till the date of payment.

24. The impugned order is therefore set aside. The appeal is allowed in terms

of the above directions. There shall be no order on costs.

 ....................................................CJI.

 [UDAY UMESH LALIT]

 ......................................................J.

 [S. RAVINDRA BHAT]

New Delhi,

September 26, 2022.