DISTILLERIES COMPANY OF SRI LANKA
COURT OF APPEALJAYASINGHE. J.
CA. (PHC) 58/98
M. C. COLOMBO 55851/5
H. C. (COLOMBO) REV. 812/96
18th FEBRUARY. 2000
30th MARCH. 2000
Conversion of Public Corporations into Public Companies – Act No. 23 of1987 – Payment of Gratuity Act No. 12 of 1983 – Amended by Acts ^os. 41of 1991 and42 of 1992 – S.5(l). S.8 – Liability of Employer to pay gratuity- Should the period under the former Employer be computed? – Effect ofS. 15(1) of the Companies Act No. 17 of 1982.
The Employeejoined the Distilleries Corporation of Sri Lanka on 1.7.1974and retired from service on 30.1.1993. Whilst he was in the employ of thesaid Corporation, it was converted into a Public Company on 17.11.1989under Act 23 of 1987.
It was the contention of the Petitioner (Labour Officer) that the RespondentCompany should pay gratuity for the entire period i. e. 1.7.1974 to30.1.1993. The Respondent company admitted liability only for theperiod the workman was employed under the company i. e. from17.11.1989 – 30.1.93.
On a certificate undei^S.8 of Act 62 of 1992, being filed in the Magistrate'sCourt, the Court held with the Petitioner, which order was reversed in theHigh Court.
The Conversion of Public Corporations or Government OwnedBusiness Undertakings into Public Companies Act provides for theestablishment of a company to take over the function of a PublicCorporation or take over and carry on any business undertakingacquired or vested in the Government.
Labour Officer v. Distilleries Company of Sri Lanka
Even where a Public Corporation or Government Owned BusinessUndertaking is converted into a Public company the workmenstill remain workmen under the company established under theConversion Act.
Therefore by operation of Law the newly constituted companywhere a Certificate of Incorporation under S. 15( 1) of the CompaniesAct 17 of 1982 is published in the gazette declaring that a PublicCompany is incorporated in the name specified in the Order, takesover the function of the Public Corporation.
Section 7(c) of Act No. 23 of 1987 is unambiguous in that it requiresthe employer to add the period of employment in the Corporation tothe period of service under the Company for the purpose of gratuity.
APPLICATION in Revision from the Order of the High Court of Colombo.
Udilha Egalahewa S. C.. for Petitioner.
Dulinda Weerasuriyai with Ms. A. Fernando for Respondent.
Cur. adv. vult.
June 23, 2000.
JAYASINGHE, J.One K. D. Abeynayake joined the Distilleries Corporationof Sri Lanka on 01.07.1974 and retired from service on30.01.1993. While the said Abeynayake was in the employ ofthe Distilleries Corporation of Sri Lanka the said Corporationwas converted into a Public Company on 17.11.1989under the provisions of the Conversion of PJblic Corporationsor Government Owned Business Undertakings into PublicCompanies Act No. 23 of 1987. Upon the retirement of the saidAbeynayake a dispute arose between Labour Officer – thePetitioner to this application and the Respondent Companyregarding the gratuity to be payed to the said Abeynayake. Itwas the contention of the Petitioner that the RespondentCompany should pay Abeynayake gratuity for the entire periodhe was in service i. e. from 01.07.1974 to 30.01.1993. TheRespondent disputed the claim admitting liability only for
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the period the workman was employed under the RespondentCompany i. e. 17.11.1989 – 30.01.1993. Consequently thePetitioner filed certificate in terms of Section 8 of the Paymentof Gratuity Act No. 12 of 1983 as amended by Act No. 41 of1991 and 62 of 1992 that the Respondent had defaulted^yment in a sum of Rs. 127,822.50, gratuity payable to theworkman. The learned Magistrate after inquiry held that theRespondent Company was in default and made order thatthe said sum be recovered as a fine. Being dissatisfied withthe order made by the learned Magistrate the RespondentCompany moved in Revision in the Provincial High Court of theWestern Province and the learned High Court Judge reversedthe order made by the learned Magistrate.
The present application is to revise the order of the learnedHigh Court Judge.
Mr. Weerasuriya referred Court to Section 5(1) of Paymentof Gratuity Act No. 12 of 1983 as amended. He argued that theemployer’s liability to pay gratuity arises on termination ofservice of a workman who has a period of service of not lessthan five years under that employer and that Section 5(1)makes an employer liable only for the period of service under“that employer” and not for any other period of service underany previous employer of that workman. He submitted that itis a basic principle in labour law that liability, of a previousemployer does not pass on to the succeeding employer unlessthere was express agreement between the two employers; thatthere was no continuity of employment unless by expressagreement between the employers.
According to Section 5(1) of the Payment of GratuityAct No. 12 of 1983 the employers liability to pay gratuity tohis workmen arises upon termination. There is the additionalrequirement that for a workman to qualify for gratuitythe workman has to have a period of service of not less thanfive completed years under that employer. The conversionof Public Corporations or Government Owned Business
Labour Officer v. Distilleries Company of Sri Lanka
Undertakings into Public Companies Act No. 23 of 1987provides for the establishment of a Company to take overthe function of a Public Corporation or take over and carryon any business undertaking acquired by or vested in theGovernment. Even where a Public Corporation or GovernmentOwned Business Undertaking is converted into a PublicCompany the workmen still remain workmen under theCompany established under the Conversion Act. Thereforeby operation of law the newly constituted Company wherea certificate of incorporation under Section 15(1) of theCompanies Act No. 17 of 1982 and published in the Gazettedeclaring that a Public Company is incorporated in the namespecified in the order takes over the functions of the PublicCorporation.
This arrangement to my mind has no effect on Section5(1). Section 7(cfof the Payment of Gratuity Act provided thatin determining, for the purpose of Section 5(1) of this Actwhether a workman in any Company which takes over thefunctions of Public Corporation or takes over and carries onany Government Owned Business Undertaking has completedfive years of service in such Company his period of servicewith the Public Corporation or Government Owned BusinessUndertaking shall be included. Section 7(c) therefore determinescontinuity of service of the workmen in the new Company forthe purpose of gratuity. Section 7A(1) provides that “. . . acompany is incorporated to take over the functions of a publiccorporation or take over and carry on a Government OwnedBusiness Undertaking, any workman of that corporation orundertaking who becomes a workman of that company, andwho becomes, upon the making of that Order, entitled to thepayment of any gratuity under this Act, shall, notwithstandinganything in the preceding provisions of this Act, be paid suchgratuity…” Section 6(2) sets out the rate and computation forthe payment of gratuity. Therefore gratuity is payable upontermination on a computation set out in Section 6(2). There isno provision to pay gratuity where the Corporation changes
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ownership because gratuity payable would be computed onthe basis of the last drawn salary. The term last drawn salaryhas a specific connotation. That gratuity is payable onlyon termination. By the operation of Section 7A( 1) read with 7(c)of Payment of Gratuity Act, without ambiguity entitles thew^kman for payment of gratuity even for the period of sendeehe continued in the Company after conversion if he became anemployer of the Company under Act No. 23 of 1987. Section7(c) is unambiguous in that it requires the employer to add theperiod of employment in the Corporation to the period ofservice under the Company for the purpose of gratuity. Section7A(1) and Section 7(c) would be without meaning if we are toaccomodate Mr. Weerasuriya’s argument that therewas termination of the services of the workmen with theincorporation of the new Company under Act No. 23 of 1987.
It is also appropriate to mention that ther e is no provisionin either Act to make the Corporation or the GovernmentOwned Business Undertaking converted into a Public Companyliable for the payment of gratuity.
The learned State Counsel referred us to P14’ the conditionsof sale of the Corporation where the Respondent Company thepurchaser was required to continue the employment of thoseemployed by the company as at the date of sale on terms andconditions not less favourable than those already enjoyed atleast for a minimum period of two years from the date ofacquisition of 60%.of the shares.
We accordingly set aside the judgment of the learnedHigh Court Judge and affirm the order made by the learnedMagistrate.
The application for revision is allowed with costs.
JAYAWICKRAMA, J. – I agree.