Supreme Court Upholds TNEB’s Dearness Allowance Policy: TNEB vs. TNEB-Thozhilalar Aykkiya Sangam (2019)

Date of the Judgment: 13 February 2019
Citation: (2019) INSC 128
Judges: R. Banumathi, J., Indira Banerjee, J.
Can an employer, specifically the Tamil Nadu Electricity Board (TNEB), be compelled to provide Dearness Allowance (DA) to its employees at rates equivalent to those of the Central Government, or can it adhere to the rates set by the State Government, especially when a prior agreement exists? The Supreme Court of India addressed this question in a dispute between TNEB and its employees’ union. The core issue revolved around whether TNEB was bound to pay DA at the rates applicable to Central Government employees or if it could follow the State Government’s rates, as stipulated in a settlement agreement. The judgment was delivered by a two-judge bench comprising Justice R. Banumathi and Justice Indira Banerjee, with Justice R. Banumathi authoring the opinion.

Case Background

The dispute arose from a settlement agreement dated 08 July 1998, between the Tamil Nadu Electricity Board (TNEB) and its workmen unions, which addressed pay-related issues for approximately 80,000 employees in Class III and IV services. This settlement, effective from 01 December 1996 to 30 November 2000, included provisions for Dearness Allowance (DA) revisions. The agreement stipulated that DA rates would be revised twice annually, on 1st January and 1st July, based on the All India Consumer Price Index, using the same formula as the State Government.

Subsequently, on 18 July 1998, the Board issued an order (BP (FB) No.58) stating that revised DA would be sanctioned to its employees at the same rate and from the same date as granted by the State Government to its employees. The Government of India enhanced DA for Central Government employees from 45% to 49% effective 01 January 2002. However, due to a financial crisis, the Tamil Nadu State Government continued to pay DA at 45%. TNEB followed suit, paying its employees 45% DA.

The employees’ union (CITU) submitted representations to TNEB on 07 May 2002 and 12 July 2002, seeking DA at the enhanced Central Government rate. These representations were rejected on 13 September 2002, with TNEB citing the 1998 settlement. The Tamil Nadu Government later revised its DA to 49% effective 01 October 2002, and TNEB followed suit. The Central Government further revised DA to 52% effective 01 July 2002, which the State Government adopted from 01 July 2003.

The respondent-Union filed writ petitions in the High Court of Madras seeking a direction to pay Dearness Allowance at the rate of 49% of the basic pay w.e.f. 01.01.2002 to 30.06.2002 and at the rate of 52% of the basic pay w.e.f. 01.07.2002 respectively. The High Court ruled in favor of the employees, directing TNEB to pay DA at the rates applicable to Central Government employees for the period from 01 January 2002 to 30 September 2002. TNEB appealed this decision to the Supreme Court.

Timeline:

Legal Framework

The case is primarily governed by the Industrial Disputes Act, 1947, specifically Section 18(1), which deals with settlements between employers and employees. The core of the dispute lies in the interpretation of Clause 5 of the settlement agreement dated 08 July 1998, which states:

“5. Dearness Allowance The revised rates of Dearness Allowance for various pay ranges will be as indicated in Annexure III. The Dearness Allowance rates will be revised twice in a year on 1st January and 1st July taking into account the variations in the previous twelve months average of the All India Consumer Price Index numbers, adopting the same formula as followed by the State Government.”

Further, Board Proceedings BP (FB) No.58 dated 18 July 1998, issued in accordance with the settlement, specified:

“III Dearness Allowance (a) The existing pay structure has been revised at All India Consumer Price Index of 1510 points and the revised dearness allowance will be sanctioned to the employees of the Board as granted by the State Government to their employees at the same rates and from the same date.”

The Supreme Court also considered the financial implications of wage revisions, referencing previous judgments on the matter. The court also considered the Government Orders issued by the State of Tamil Nadu regarding the revision of Dearness Allowance.

Arguments

Appellant (TNEB) Arguments:

• The settlement dated 08 July 1998, and Board Proceedings BP (FB) No.58 dated 18 July 1998, clearly stipulate that Dearness Allowance (DA) for TNEB employees would be revised based on the same formula and at the same rates as the State Government employees.
• The High Court overlooked the principle that the obligation to pay enhanced DA depends on the employer’s financial position.
• TNEB is facing a difficult financial position and paying revised DA for the disputed period would have a significant financial impact.
• The High Court erred in relying on a previous judgment (W.P. No.10474 of 1999) which dealt with a different issue i.e. payment of arrears of DA in cash instead of crediting to the General Provident Fund.

Respondent (Union) Arguments:

• TNEB employees are not government servants and should not be compared with State Government employees.
• TNEB employees are governed by labor laws, and the settlement dated 08 July 1998, stipulates that DA revision should be based on the All India Consumer Price Index.
• Board Proceedings BP (FB) No.58 dated 18 July 1998, unilaterally altered the terms of the settlement by restricting DA payment to TNEB employees on par with State Government employees.
• Restricting the payment of revised DA from 01 October 2002, instead of 01 January 2002, is contrary to the settlement.
• The Board’s action in restricting the payment from 01.10.2002 following State Government order in G.O. No.346 Finance Department dated 21.10.2002 is contrary to the binding settlement dated 08.07.1998.

The core of the dispute centered on whether TNEB could unilaterally decide to follow the State Government’s DA rates, especially when the initial settlement seemed to tie DA revisions to the All India Consumer Price Index. The union argued that TNEB’s decision was a unilateral alteration of the settlement terms, while TNEB maintained that it was adhering to the settlement by following the State Government’s rates.

[TABLE] of Submissions:

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for consideration:

1. Pursuant to the Memorandum of Settlement dated 08.07.1998 recorded under Section 18(1) of the Industrial Disputes Act, 1947 and BP (FB) No.58 dated 18.07.1998, when the Board has been adopting the formula of the State Government in revising the rate of Dearness Allowance on par with the State Government employees, whether the High Court was right in directing the appellant-Board to pay the revised DA at the rate of 49% from 01.01.2002 and 52% from 01.07.2002?
2. When the settlement dated 08.07.1998 between the appellant and the unions has been followed by the Board stipulating that the revision of Dearness Allowance would be on par with the rate sanctioned by the State Government to its employees, in deviation therefrom, whether the respondents are right in insisting upon revision of Dearness Allowance at the abovesaid rates?

Treatment of the Issue by the Court:

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court relied on the following authorities:

On the principle that revision of wage or Dearness Allowance depends on the employer’s financial position:

• Workmen of Gujarat Electricity Board, Baroda v. Gujarat Electricity Board, Baroda (1969) 1 SCC 266 – Supreme Court of India: The Court upheld the Tribunal’s rejection of the employees’ demand for DA based on the Ahmedabad Mill Owners’ Association scale due to the Board’s financial constraints.
• Bengal Chemical & Pharmaceutical Works Ltd. v. Its Workmen [1969] 2 SCR 113 – Supreme Court of India: The Court reiterated that full neutralization of the cost of living is not advisable and that DA should depend on the employer’s ability to bear the burden, referring to Kamani Metals & Alloys Ltd. v. Their Workmen [1967] 2 SCR 463- Supreme Court of India.
• T.N. Electricity Board v. R. Veerasamy and Ors. (1999) 3 SCC 414 – Supreme Court of India: The Court acknowledged that financial constraints are a valid reason for setting a cut-off date for the implementation of a pension scheme.
• State of Punjab and Others v. Amar Nath Goyal and Others (2005) 6 SCC 754 – Supreme Court of India: The Court held that the government’s decision to limit benefits based on financial implications is neither irrational nor arbitrary.

On the interpretation of the settlement agreement and Board Proceedings:

• Clause 5 of the settlement dated 08.07.1998 – Industrial Disputes Act, 1947: The settlement stipulated that Dearness Allowance rates will be revised twice in a year on 1st January and 1st July taking into account the variations in the previous twelve months average of the All India Consumer Price Index numbers, adopting the same formula as followed by the State Government.
• Board Proceedings BP (FB) No.58 dated 18.07.1998: The order stated that the revised Dearness Allowance would be sanctioned to the employees of the Board as granted by the State Government to their employees at the same rate and from the same date.

[TABLE] of Authorities Considered:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• Workmen of Gujarat Electricity Board, Baroda v. Gujarat Electricity Board, Baroda (1969) 1 SCC 266*: The Court used this case to emphasize that the financial capacity of the employer is a relevant factor in determining Dearness Allowance.
• Bengal Chemical & Pharmaceutical Works Ltd. v. Its Workmen [1969] 2 SCR 113*: The Court cited this case to reiterate that full neutralization of the cost of living is not advisable and that DA should depend on the employer’s ability to bear the burden.
• T.N. Electricity Board v. R. Veerasamy and Ors. (1999) 3 SCC 414*: The Court used this case to support the view that financial constraints are a valid ground for setting cut-off dates for benefits.
• State of Punjab and Others v. Amar Nath Goyal and Others (2005) 6 SCC 754*: The Court cited this case to support the view that the government’s decision to limit benefits based on financial implications is neither irrational nor arbitrary.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• Adherence to the Settlement Agreement: The Court emphasized that the settlement agreement dated 08 July 1998, and the subsequent Board Proceedings BP (FB) No.58 dated 18 July 1998, clearly stipulated that TNEB would follow the State Government’s rates for Dearness Allowance (DA).
• Financial Constraints: The Court acknowledged the difficult financial position of both the State Government and TNEB, which justified the decision to adopt the State Government’s DA rates.
• Consistency in Practice: The Court noted that TNEB had consistently followed the State Government’s DA rates in the past, and there was no reason to deviate from this practice.
• No Unilateral Alteration: The Court rejected the argument that TNEB had unilaterally altered the terms of the settlement, stating that the Board Proceedings were in line with the agreement.
• Rejection of Parity with Central Government: The Court clarified that TNEB was not obligated to follow Central Government rates, as the settlement specifically linked DA to State Government rates.

[TABLE] of Sentiment Analysis:

Fact:Law Ratio Table:

Logical Reasoning

The following flowchart illustrates the Supreme Court’s logical reasoning in resolving the issues:

Judgment

The Supreme Court held that the Tamil Nadu Electricity Board (TNEB) was correct in following the State Government’s rates for Dearness Allowance (DA) as per the settlement agreement and Board Proceedings. The court rejected the argument that TNEB was obligated to pay DA at the rates applicable to Central Government employees.

The Court reasoned that:

• The settlement agreement dated 08 July 1998, and Board Proceedings BP (FB) No.58 dated 18 July 1998, clearly stipulated that TNEB would follow the State Government’s rates for DA.
• TNEB had consistently followed the State Government’s DA rates in the past, and there wasno reason to deviate from this practice.
• The financial position of TNEB justified the decision to adopt the State Government’s DA rates.
• The High Court had erred in directing TNEB to pay DA at the rates applicable to Central Government employees, as this was contrary to the settlement agreement.

The Supreme Court, therefore, set aside the judgment of the High Court and ruled in favor of TNEB.

Key Takeaways

The Supreme Court’s judgment in Tamil Nadu Electricity Board vs. TNEB-Thozhilalar Aykkiya Sangam (2019) highlights several key takeaways:

• Importance of Settlement Agreements: The judgment underscores the significance of settlement agreements under Section 18(1) of the Industrial Disputes Act, 1947. These agreements are binding on both the employer and employees, and any deviation must be justified.
• Financial Position of the Employer: The financial position of the employer is a crucial factor in determining the extent of benefits to be provided to employees. The employer’s financial constraints can justify the adoption of lower rates of Dearness Allowance (DA).
• Consistency in Practice: The Court emphasized the importance of consistent practice in implementing settlement agreements. If an employer has consistently followed a particular practice, it is less likely to be considered arbitrary.
• No Unilateral Alteration: Employers cannot unilaterally alter the terms of a settlement agreement. Any changes must be in line with the agreement or justified by valid reasons.
• Parity with State Government Employees: In the context of State Government undertakings, the settlement agreement may stipulate that employees be treated on par with State Government employees in matters of DA.