Sri Lanka Law Reports
(1989) 2 Sri LR
COMMISSIONER OF LABOUR AND OTHERS
COURT OF APPEAL
VIKNARAJAH, J. AND A. DE Z. GUNAWARDANA, J.
C..A. APPLICATION NO. 77/88MAY 16, 1989
Industrial Law – Workman – Whether Group Managing Director, a workman within themeaning of the Payment of Gratuity Act No.12 of 1983 – Sections 8(1) and 13 – Af-fidavit – What an affidavit should contain – Full disclosure required in writ and injunc-tion applications.
An application for a writ of certiorari was filed by the petitioner to quash an order madeby the 3rd respondent, the Assistant Commissioner of Labour awarding gratuity to the4th respondent in a sum of Rs.87,500/-, and also for a mandate, in the nature of a writof prohibition against the 1st and 2nd respondents from enforcing the said order.
The 4th respondent was first appointed Managing Director, Colombo Paints Companyon 1.5.80 and served in that capacity till 28.2.82. Thereafter the 4th respondent wasappointed Group Managing Director of Collettes Group of Companies from whichposition he resigned with effect from 31.5.87. After his resignation, he made anapplication to the 1st respondent to obtain an order for payment of gratuity. Afterinquiry by the 2nd respondent, the 3rd respondent made the said award of Rs.87.500/-as gratuity.
that a Managing Director has a dual capacity of being an employee of thecompany and also at the same time takes part in the management of thecompany. The fact that as Managing Director or as Group ManagingDirector he takes part in the management of the affairs of the company doesnot deprive him of his other capacity as an employee of the said company.Therefore the 4th respondent falls within the definition of a "workman" setout in the Payment of Gratuity Act;
that the fact that a person received a special allowance or a compensatoryallowance does not deprive him of the right to receive gratuity under thePayment of Gratuity Act. Such payment is not covered by the provisions ofsection 7 of the Payment of Gratuity Act;
that there is no specific requirement in section 8(1) of the Payment ofGratuity Act to call evidence. What seems to be necessary is, for theCommissioner to be satisfied of the relevant matters necessary to decide, onthe question whether a person is entitled to gratuity or not;
that an affidavit should be confined to the statements of such facts as thedeclarant is able to state of his own knowledge and observation to testify:
Collettes Ltd. v. Commissioner of Labour (A. De Z. Gunawardana, J.)
that it is essential, that when a party invokes the writ Jurisdiction or appliesfor an injunction, all facts must be clearly, fairly and fully pleaded before thecourt so that the court would be made aware of all the relevant matters.
Cases referred to:
Ceylon Electricity Board v. de Abrew 78 N.L.R. 97.
Brakes and Clutch Unlngs (Pvt) Ltd., v. W. L. P. de Mel and two others SC App-lication No.184 of 1975 – S.C. Minutes of 27.03.78.
Walker Sons and Company (U:K.) Ltd. v. W. P. Gunatilleke et. al 1985 BarAssociation Law Journal Vol. 1 pt. 5 page 205; (CA) S.C. Application No.365/76 -S.C. Minutes of 28.11.79.
Lee v. Lee's Air Farming Limited (1960) 3 All ER 420.
Anderson v. James Southerland (1941) SC 203.
Simon Fernando v. Gunhsekera 47 NLR 512.
IV. S. Alfonso Appuhamy v. Hettiarachchl 77 NLR 131.
King v. The General Commissioner for the Purpose of the Income Tax Acts for theDistrict of Kensington – ex parte Princes Edmond de Poignac (1917) KBD 486.
Dalglish v. Jarvie 2 Mac & G. 231, 238.
APPLICATION for writ of certiorari to quash order of Assistant Commissioner ofLabour.
S. Mahenthlran for petitioner.
P. A. Ftatnayake, S.S.C. for 1st, 2nd and 3rd respondents.
G. L T. Aiagaratnam for 4th substituted respondent.
Cur. adv. vult
September 08, 1989.
DE Z. GUNAWARDANA, J.
This is an application by the petitioner, Collettes Ltd. for a Mandatein the nature of a Writ of Certiorari quashing the order made by the3rd respondent contained in a letter dated 14.12.87, requiring thepetitioner Company to pay a sum ol Rs.87,500/- as gratuity to the 4threspondent and also for a Mandate in the nature of a Writ ofProhibition against 1st to 3rd respondents from enforcing the saidorder.
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The 4th respondent was appointed Managing Director of ColomboPaints Company Limited from 1.5.80 and served in that capacity till28.2.82. Thereafter the 4th respondent was appointed GroupManaging Director of Collettes Group of Companies, of whichCollettes Ltd. was the principal parent Company. The 4th respondentresigned from the said position with effect from 31.5.87.Subsequently, the 4th respondent made an application to the 1strespondent to obtain an order for payment of gratuity. An inquiry washeld by the inquiry officer, the 2nd respondent. Upon the report madeby the 2nd respondent recommending the award of a sum ofRs.87,500/- as gratuity, the 3rd respondent made order under thePayment of Gratuity Act No. 12 of 1983, contained in the letter dated
requiring the petitioner Company to pay the 4th respondenta sum of Rs.87,500/- as gratuity in terms-of section 5(1) of thePayment of Gratuity Act. The petitioner being aggrieved by the saidorder has filed the present application in this Court.
Counsel for the petitioner submitted that the Payment of GratuityAct does not apply to the 4th respondent because he was theManaging Director of Colombo Paints Limited at one time and laterthe Group Managing Director of Collettes Group of Companies andthat, in that capacity he was not a 'workman' in terms of the definition‘workman’ under the Payment of Gratuity Act. In the said Act‘workman’ is defined as follows:
“ ‘Workman’ means any person who has entered into or worksunder a contract with an employer in any capacity, whether thecontract is expressed or implied, oral or in writing and whether itis a contract of service or of apprenticeship, or a contractpersonally to execute any work or labour, and includes any personordinarily employed under any such contract whether such personis or is not in employment at any particular time, and, includes anyworkman whose services have been terminated.”
It is to be noted that the word ‘workman’ has been interpreted bythe Supreme Court both in relation to Industrial Disputes Act andTermination of Employment of Workmen (Special Provisions) Act. Inthe Industrial Disputes Act the word ‘workman’ has been given theidentical definition as in the Payment of Gratuity Act. In the case ofthe Ceylon Electricity Board vs. de Abrew (1), the question whetherthe General Manager, Ceylon Electricity Board is a workman’ withinthe meaning of the Industrial Disputes Act was considered by the
Collettes Ltd. v. Commissioner of Labour (A De Z. Gunawardana.J.)
Supreme Court and was decided that he was a ‘workman' within themeaning of the Industrial Disputes Act.
In the Termination of Employment of Workmen (Special Provisions)Act No.45 of 1971, a ‘workman* is defined as follows:.
" ‘Workman* has the same meaning as in the IndustrialDisputes Act but does not include a workman to whom, by virtueof the operation of the provision of sub-section (1) of section 3,the provisions of this Act other than section 3 do not apply.”
Samarakoon CJ having considered this definition held in hisjudgment dated 27.3.78 in the unreported case of Brakes and ClutchLinings (Pvt) Ltd., vs. W. L. P. de Mel and two others,(2) that, theManaging Director of the said Company is a workman in terms ofTermination of Employment of Workmen (Special Provisions) Act.Samarakoon CJ in his judgment states:
‘‘He contends that the Managing Director under the CompaniesOrdinance has a special or peculiar status, which does not bringhim within the definition of ‘workman’ under the provisions of Act45 of 1971. I am however, unable to agree with this contentionthat he has any characteristics which takes him out of thedefinition in Act No.45 of 1971."
thus it,is seen that the Supreme Court has interpreted thedefinition of ‘workman’ given in the two statutes which are identical tothe definition given in the Payment of Gratuity Act, to include aManaging Director of a Company.
Counsel for the petitioner drew our attention to the case of WalkerSons and Company (U.K.) Ltd., vs. W. P. Gunatilleke et. al,(3). Inthis case it was held that a ratio decidendi of two previous casesdecided by the Supreme Court is binding on the Court of Appeal.Although the two cases referred to above are interpretations of theword ‘workman’ in relation to two different statutes, and are thereforenot binding on this Court, nevertheless, those interpretations are ofgreat persuasive value. In the circumstances, -we are inclined tofollow them.
However, the learned Counsel fqr the petitioner contended that the4th respondent being a Managing Director belonged to a specialcategory of employees and is not a ‘workman’ within the meaning ofPayment of Gratuity Act. He submitted that the 4th respondent
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belonged to the group of persons who formed the "directing mindand will of the Company." He added that the 4th respondentconstituted the groi^a forming the management of the Company. Inthis regard Palmer in his book on Company Law 21st Edition page521-522 states that:
"A Director can hold a salaried employment or an office inaddition to that of his directorship which may for those purposesmake him an employee or servant; in such a case he would enjoy •any rights given to employees as such; but his directorship andhis rights through that directorship 'are quite separate from hisrights as employee.”
Similarly in the case of Lee vs. Lee's Air Farming Limited (4), thequestion whether Lee was a ‘workman’ within the meaning of NewZealand Workers Compensation Act, which applies only to personswho have entered into a contract of service with an employer wasconsidered. It was revealed in this case that the deceased was thesole governing director and principal of a “one-man company.” Hehad entered into a contract with the company as the sole pilot of thecompany and died when the aeroplane he was flying, crasned. LordMorris in his judgment at page 525 states that,
"It is well established that the mere fact that someone is aDirector of a Company is no impediment to his entering into acontract to serve the Compahy…Nor in Their Lordships' view wereany contractual obligations invalidated by the circumstance thatthe deceased was sole governing director in whom was rested thefull government and control of the respondent Company.” Inanother case namely Anderson vs. James Southerland (5),referred to by Palmer, Lord Normand states: “In my opinion,therefore, the Managing Director has two functions and twocapacities. Qua Managing Director he is a party to a contract withthe company, and this contract is a contract of employment – morespecifically I am of opinion that it is a contract of service and nota contract for services. There is nothing dnamolous in this; indeedit is a common place of law that the same individual may havetwo or more capacities, each including special rights and duties inrelation to the same thing or matter or in relation to the samepersons.”
Thus it is clear that a Managing Director has a dual capacity of
CACollettes.Ud. v. Commissioner of Labour (A De Z. Gunawardana, J )11
being an employee of the Company and also at the same time takespart in the management of the Company. The letter of appointmentdated 27.11.79 appointing the 4th respondent as Managing Directorof Colombo Paints Ltd., required him to enter into a formal agreementof a contract of service and the letter dated .28.2.82 appointing the4th respondent as Group Managing Director required him to considerthat letter as his official letter of appointment, and the terms andconditions of employment are set out therein. It is also evident fromthe said documents that the 4th respondent was paid a monthlysalary for his services for the said Companies. The fact that asManaging Director or as Group Managing Director he takes part inthe management of the affairs of the said Companies does not in ourview deprive him of his other capacity, as an employee of the saidcompanies. Therefore we hold that the 4th respondent falls within thedefinition of a ‘workman* set out in Payment of Gratuity Act and isentitled to receive gratuity under the said Act.
It was contended by the Counsel for the petitioner that the 4threspondent was not entitled to receive any gratuity because he wasa person who was receiving a pension under a non-contributorypension scheme. He cited in support of his contention the provision insection 7 of 'the Payment of Gratuity Act where it is stated that:
"The provisions of section 5 shall not apply to or in relation to aworkman-
entitled to a pension under non-contributory pensionscheme.”
The learned Counsel submited that in terms of the letter ofappointment as Managing Director of Colombo Paints Ltd. dated
there was provision to pay an allowance in lieu of thepension which the 4th respondent was forfeiting by accepting the saidappointment. In order to ascertain whether this provision in the letterof appointment is in fact a contributory pension, it is necessary toconsider the contents of it. Paragraph 8 of the said letter ofappointment states as follows:
“In view of the fact that as a consequence of your prematureretirement from your present employment to take up at ourrequest your appointment with this Company you will be losing the
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equivalent of Pounds Sterling Forty (£40/-) per month as pension;the Company will pay you, as a Special Allowance, the equivalentin Rupees of Pounds Sterling Forty (£40/-) per month calculatedat the rate of exchange prevailing on the last working day of' eachmonth, for the duration of your life."
It is also to be noted that in the letter of appointment of the-4threspondent as Managing Director of Collettes Group of Companiesdated 28.2.82 a similar provision was made in paragraph 4 whichreads as follows:
“Compensatory allowance of Sterling Pounds Forty per month,paid now while in service, will be paid for life unless you resignthe services of the Company before expiry of 5 years from 1stMay 1980. This is being paid as you had to forego your pensionrights in the U.K. The Compensatory allowance shall be paidequivalent in Sri Lanka Rupees."
In the first letter of appointment it is clearly stated that it is ASpecial Allowance in lieu of the Forty Pounds Sterling pension thatthe 4th respondent was losing by accepting the said appointment. Itis significant that this payment is referred to, as a Special Allowance.In the second letter of appointment this said payment is referred to,as a Compensatory Allowance .and the same reason is adduced formaking the said payment, viz., for having to forego the “pensionrights in the U.K.” Thus it is clear that this payment is not a non-contributory pension and therefore would not be covered by theprovisions in section 7 of the Payment of Gratuity Act. This is, asdescribed in the said letters, a Special Allowance or a CompensatoryAllowance in view of the fact that the 4th respondent had to foregohis pensioin rights in the U.K. Therefore we are of the view that, thepayment of the said allowance of Forty Pounds Sterling, does notaffect the entitlement of the 4th respondent to receive gratuity underthe Payment of Gratuity Act.
Learned Counsel for the petitioner submitted that the 2ndrespondent failed to hold a proper and full inquiry. Therefore theorder made by the 3rd respondent was not valid in law. Section 8(1)of the Payment of Gratuity Act states that,
"The Commissioner may issue a certificate after such inquiry ashe may deem necessary.”
Collettes Ltd. v. Commissioner of Labour (A. De Z. Gunawardana, J.)
It is seen that there is no specific requirement that the Commissionershould call evidence. All that seems to be necessary is for theCommissioner to be satisfied of the relevant matters necessary todecide on the question whether a person is entitled to gratuity or not.It is seen from the document 3R4, the notes of inquiry before the 2ndrespondent that there had been a full discussion in regard to thematters at issue. In fact, four matters have been raised at the saidinquiry, tney are:-
that the 4th respondent being a Managing Director is not a‘workman’ Within the provisions of the said Act,
that section 189 of the Companies Act prohibits any paymentto be made to any Director of the Company withoutdisclosing such payment to the Members of the Companyand without the approval of the Company,
that the 4th respondent was in receipt of a non-contributorypension of £40/- per month,
that the 4th respondent had taken unauthorised overseascalls to the value of over hundred thousand rupees andthereby caused loss to the Company.
All these matters were considered by the Inquiry Officer, the 2ndrespondent, before he made his recommendation to award gratuity:
Although the Counsel for the petitioner complained that he was notallowed to lead any evidence at the inquiry, and that they took up theposition that 4th respondent would have to start and place necessaryevidence, the 2nd respondent in his affidavit states that the petitionerCompany did not take up the position that the 4th respondent wouldhave to start and place the necessary evidence and that it isnecessary to test the testimony of the 4th respondent by cross-examination.
In the circumstances it is our view that the Inquiry Officer hadmade such inquiry as he deemed necessary* as required by law,before he made his recommendation to award gratuity to the 4threspondent. Since there is adequate compliance with the provisionsof the Payment of Gratuity Act we hold that* the award made by the3rd respondent is valid in law.
It was also contended on behalf of the petitioner that gratuity is not
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payable to 4th respondent because he has caused loss to theCompany by taking unauthorised overseas private calls, amounting toover a hundred thousand rupees. The learned Counsel submitted thatunder section 13 of the Payment of Gratuity Act, the gratuity payableis forfeited to the extent of the damage or loss caused. Section 13 ofthe Payment of Gratuity Act states:
"Any workman to whom a gratuity is payable under part II ofthis Act and whose services have been terminated for reasons offraud, misappropriation of funds of the employer, wilful damage toproperty of the employer or causing loss of goods, articles orproperty of the employer, shall forfeit such gratuity to the extent ofthe damage or loss caused by him."
Learned Counsel submitted that since the 4th respondent hastaken unauthorised calls to the value of hundred thousand rupees,loss has been caused to the company. Therefore, under theprovisions of this section the gratuity awarded must be forfeited.Upon a reading of the said section it is clear that provisions in thesection require that,
“The services should have been terminated for reasons offraud, misappropriationor causing loss of goods”
In this case there is no dispute that the 4th respondent resignedfrom the post of Managing Director, Collettes Group of Companies onhis own volition. It is evidenced by letter dated 24.2.87, documentmarked 4R2. It is interesting to note that by letter dated 6.4.87,document marked 4R3, the Chairman, Collettes Ltd., has thanked the4th respondent on behalf of the Board, for carrying on the onerousduties as Group Managing Director. Therefore it is clear that theservices of the 4th respondent have not been terminated for any ofthe reasons set out in that section and, in our view this section hasno application in this case.
Counser for the 4th respondent submitted that the affidavit filed bythe petitioner is a non-affidavit because the declarant had averredfacts which were not within his personal knowledge. He specificallypointed to paragraph 10 of the affidavit where it has been stated that:
“The Company took up the position that the 4th. respondentwould have to start and place necessary evidence and histestimony be tested by cross-examination.”
Collettes Ltd. v. Commissioner ot Labour (A. De Z. Gunawardana, J.)
The learned Counsel submitted that the declarant was not present atthe said inquiry and the facts he had averred in the said paragraphwere not within his personal knowledge. In any event this was not thecorrect position that arose at the inquiry. He pointed out that in theaffidavit filed by the*2nd respondent it is stated as follows:
"Further I would like to specifically state that the petitionerCompany had not taken up any position to the effect that the 4threspondent would have to start and place necessary evidence andhis testimony to be tested by cross-examination.'’
This position taken up by the 2nd respondent is supported by affidavitfiled by the 3rd respondent in paragraph 11. It is seen from document3R4, the notes of the inquiry held by the 2nd respondent, that theCollettes Limited was represented by its Chairman and its lawyers.There is no mention of the declaranrbeing present at the inquiry. Thedeclarant has not stated in his affidavit that he was present at theinquiry and has failed to state as to how these facts are within hispersonal knowledge.
In dealing with what the contents of an affidavit should be, section181 of the Civil Procedure Code, states:
“Affidavits shall be confined to the statement of such facts asthe declarant is able of his own knowledge and observation totestify to, except on interlocutory applications, in which statementof his belief may be admitted, provided that reasonable groundsfor such belief be set forth in the affidavits.”
Thus it appears that the averment in the said paragraph of the saidaffidavit contravenes the provisions of section 181, of the CivilProcedure Code. In the case of Simon Fernando vs. Gunasekera, (6)Dias J. states:
“Section 181 of the Civil Procedure Code makes it clear thataffidavit must be confined to statement of such facts that adeclarant is able of his own knowledge and observation to testifyto. An exception is made in the case of interlocutory affidavit, inwhich statements regarding his belief may be admitted, providedreasonable grounds of such belief be set forth in the affidavit.”
Learned Counsel for the 4th respondent also pointed out toparagraph 15 of the said affidavit where it is stated as follows:
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"The 4th respondent was entitled for £40/- pension a monthunder a non-contributory pension scheme. This position isacknowledged in the 4th respondent’s letter dated 4th July 1987marked ‘C’
This is a letter sent by the 4th respondent to the Board of Directorsof Collettes Limited, wherein the payment concerned is not referredto as a pension but as follows:
"According to my letter of appointment, a CompensatoryAllowance of the Sri Lanka Rupee equivalent of Sterling PoundsForty per month is payable for life.”
Thus it is seen from the said letter that the 4th respondent has notacknowledged that he is in receipt of a non-contributory pension.However, the declarant in his affidavit had referred to the saiddocument marked 'G' to support his contention that it is a no'n-contributory pension, but it is clear from the contents of the documentthat it is not so. Hence the learned Counsel for the 4th respondentsubmitted that the averment in the affidavit was a misrepresentationof fact. In our view there is substance in the said submission of thelearned Counsel.
It has been repeatedly pointed out by our courts that a full and fairdisclosure of all material facts should be placed before the Courtwhen an application for a Writ of Injunction is made and thediscretionary powers of the courts are invoked in that regard. In thecase of W. S. Alfonso Appuhamy vs. Hettiarachchi (7) it has beenheld;
"When an application for a prerogative Writ or an Injunction ismade, it is the duty of the petitioner to place before the courtbefore it issues notice in the first instance, a full and truthfuldisclosure of all material facts; the petitioner must act withuberrima tides.”
The case of King vs. The General Commissioner of the Purpose ofthe Income Tax Acts for the District of Kensington – ex parte PrincesEdmond de Poignac (8) dealt with Writ of Prohibition and theprinciples enunciated and applicable to all cases of Writs andInjunctions. In this case the Divisional Court when dealing with themerits of the case discharged the Writ on the ground that theapplicant had suppressed or misrepresented facts material to her
OA Collettes Ltd. v. Commissioner of Labour (A. De Z. G unaward ana, J.)17
application. The Court of Appeal affirmed the decision of theDivisional Court. Thus it is seen that in cases where there had beena suppression of material facts they are liable to be dismissed withoutgoing into the merits of the case if there had not been a full and fairdisclosure of all material facts.
Lord Cozens-Hardy M.R. in his judgment in the said case refers tothe case of Dalglish vs. Jarvie (9) where Lord Langdale and Rolfe Bhave stated that,
"It is the duty of a party asking for an injunction to bring underthe notice of the Court all facts material to the determination of hisright to that injunction; and it is no excuse for him to say that hewas not aware of the importance of any facts which he hasomitted to bring forward.”
LOrd Cozens-Hardy M:R. goes further to state;
"That is merely one and perhaps rather a weighty authority infavour of the general proposition which I think has beenestablished, that on an ex-parte application uberrima tides isrequired and unless that can be established, if there is anythinglike deception practised on the Court, the Court ought not to gointo the merits of the case, but simply say, – We. will not listen toyour application because of what you have done.”
Thus it is essential that, when a party invokes the Writ jurisdictionor applies for an Injunction to this Court, all facts must be clearly,fairly and fully pleaded before the Court, so that Court would bemade aware of all the relevant matters. It is necessary that thisprocedure must be followed by all litigants who come before thisCourt in order to ensure that justice and fairplay would prevail.
Accordingly, for the reasons we have stated above w.e uphold theorder made by the 3rd respondent awarding the 4th respondent asum of Rs. 87,500/- as gratuity and dismiss the application of thepetitioner with costs fixed at Rs. 210/-.
VIKNARAJAH, J. – I agree.Application dismissed.