THE PAYMENT OF GRATUITY  ACT, 1972 (AMENDED 2018)

Gratuity is defined as a benefit given by the employer to the employee for rendering services continuously for five years or more. It is a mandatory and monetary benefit usually given at the time of employee separation from organization or retirement. But there are certain rules which make an employee eligible to receive gratuity.

Employment / Labour Laws in India (Latest Amendments included)

Union of India v. K.M. Shankarappa, (2001) 1 SCC 582,

The executive has to obey judicial orders. Without enacting an appropriate legislation, the executive or the legislature cannot set at naught a judicial order.


The Code replaces the following four laws: (i) the Payment of Wages Act, 1936, (ii) the Minimum Wages Act, 1948, (iii) the Payment of Bonus Act, 1965, and (iv) the Equal Remuneration Act, 1976.





Laws That Protect You at Your Workplace in the United States
The main purpose and concept of gratuity is to help the workman after the retirement, whether the retirement is a result of the rules of superannuation or physical disability or impairment of the vital part of the body. Gratuity is the amount which is not connected with any consideration and has to be considered as something given freely for the service the employee has rendered to the organization for more than 5 years.

DEFINITIONS [Sec 2]


(a) "appropriate Government"
means, -

(i) in relation to an establishment -
(a) belonging to, or under the control of, the Central Government,
(b) having branches in more than one State,
(c) of a factory belonging to, or under the control of, the Central Government,
(d) of a major port, mine, oilfield or railway company, the Central Government,
(ii) in any other case, the State Government;

(b) "Completed year of service"
means continuous service for one year;

(e) “employee” means any person (other than an apprentice) who is employed for wages, whether the terms of such employment are express or implied, in any kind of work, manual or otherwise, in or in connection with the work of a factory, mine, oilfield, plantation, port, railway company, shop or other establishment, to which this Act applies, but does not include any such person who holds a post under the Central Government or a State Government and is governed by any other Act or by any rules providing for payment of gratuity.

Benefit Of Gratuity Cannot Be Denied To An Employee By Designating Him As A Trainee - appeal under Section 7(7) of the Gratuity Act : Kerala HC 


[Read Judgment]

IREL (INDIA) LIMITED vs P. N. RAGHAVA PANICKER
WP(C).No.2254 OF 2020(F)

Court held that a trainee is not excluded from the definition of the term 'employee' under the Gratuity Act, but only an 'apprentice' is excluded. Section 2(e) of the Payment of Gratuity Act, 1972 defines an “employee” which excludes only apprentice. The Act says “employee means any person (other than an apprentice)...”. 

 A Karnataka High Court judgment was relied upon by the employer to contend that in the absence of any statutory provision under the Gratuity Act which could be pressed into service, a trainee cannot be entitled to gratuity.

Further Court held that "The Gratuity Act is undoubtedly a welfare statute which only bars an apprentice from the benefit of payment of gratuity during such training period. However, designating an employee as trainee, extracting regular work from him and then denying him the benefit of Gratuity Act under the pretext of such employee being a trainee would certainly defeat the object of the welfare statute."

(c) "Continuous service" means continuous service as defined in section 2A;

(K)"notification" means a notification published in the Official Gazette and the expression "notified" shall be construed accordingly;'.

(q) "Retirement" means termination of the service of an employee otherwise than on superannuation;

(r) "superannuation", in relation to an employee, means the attainment by the employee of such age as is fixed in the contract or conditions of service at the age on the attainment of which the employee shall vacate the employment;


(s) "wages" means all emoluments which are earned by an employee while on duty or on leave in accordance with the terms and conditions of his employment and which are paid or are payable to him in cash and includes dearness allowance but does not include any bonus, commission, house rent allowance, overtime wages and any other allowance.

APPLICABILITY
  • Every factory (as defined in Factories Act), mine, oilfield, plantation, port and railway.
  • Every shop or establishment to which Shops & Establishment Act of a State applies in which 10 or more persons are employed at any time during the year end.
  • Any establishment employing 10 or more persons as may be notified by the Central Government.
  • Once Act applies, it continues to apply even if employment strength falls below 10.
In Regional Provident fund Commissioner v. The Regional Labour Commissioner and others (1985 II labour Law Journal 63)an upper divisional clerk working in the establishment of regional Provident fund Commissioner resigned his job in March 1982 after rendering service for more than nine years, and claimed that the tea under this act. The High Court of Karnataka held that the said establishment falls within the definition of an establishment under tThe Payment of Gratuity Act, 1972 and the employee was entitled to gratuity, nowwithstanding the fact that he resign the job.Woo Woo

In Arasuri Ambajimata Mandir devasthan Trust v. Jaitabhai Patel, Shramjivi general Works union ( 1983 (3) Supp. labour law general 1129), it was held at the though the post in Temple trust is controlled by state government., It is not a post under State government. So as to fall under the exclusion under section 2 (e) and hence it falls under the definition of employee and is entitled to gratuity under the act. which means though the temple is not mentioned in the section (e) of the act, court held that it is applicable under this act.




Private Hospitals Are Covered Under Payment Of Gratuity Act : Kerala High Court


The contention of the appellant before the Court, Lourdes Hospital, was that it did not come within the purview of the Kerala Shops and Commercial Establishments Act, 1960, being a charitable institution. The Gratuity Act is applicable to 'shops and establishments within the meaning of any law for the time being in force in relation to shops and establishments in a State', as per Section 1(3)(b). Since the hospital was out of the ambit of Shops and Establishments Act, it was not covered under Gratuity Act, contended the appellant.

The Court held that whether an establishment made profit or not was immaterial. Following the Supreme Court's precedent Management of Tata Iron and Steeel Co.Ltd vs Chief Inspecting Officer and others, the bench observed :

The Apex Court held that, if the activity is frequent, continuous and relating to business, whether it earns profit or not is irrelevant. Since the above ingredients were present in respect of the activities of the hospital, it was held as an establishment under Section 2(6) of the above Act.


Teachers entitled to Gratuity under Payment of Gratuity Act : Supreme Court of India



CIVIL APPELLATE JURISDICTION
CIVIL APPEAL No.2530 OF 2012

Birla Institute of Technology ....Appellant(s)
VERSUS
The State of Jharkhand & Ors. ...Respondent(s)

The Supreme Court today held that teachers are entitled to gratuity under the Payment of Gratuity Act, 1972 (Act). A Bench of Justices Abhay Manohar Sapre and Indu Malhotra recalled its previous judgment that had laid down that teachers do not fall within the scope of the definition of ’employees’ under the Act.

In its judgment rendered on January 7 2019, a Bench of Justices Abhay Manohar Sapre and Indu Malhotra had placed reliance on the case of Ahmadabad Pvt. Primary Teachers Association v. Administrative Officer and Others [(2004) 1 SCC 755] to hold that teachers do not fall within the scope of the definition of ‘employee’ under Section 2 (e) of the Act.

The Court had thus, allowed the appeal filed by Birla Institute of Technology and set aside the judgment of the Jharkhand High Court.

The operation of this judgment was, however, suo motu stayed by the Court just two days after the pronouncement of the judgment. The Court noted in that order that it was not apprised of the amendment brought to the Act by the Parliament in 2009. In its order, the Court said,

“Keeping in view the amendment made in the definition of Section 2(e), which as stated above was not brought to the notice of the Bench, this issue was not considered though had relevance for deciding the question involved in the appeal. It is for this reason, we prima facie find error in the judgment and, therefore, are inclined to stay the operation of our judgment dated 07.01.2019 passed in this appeal.”

The definition of the word “employee” under the Gratuity Act was amended through an amendment brought in by the Parliament in 2009. This amendment was given a retrospective effect from April of 1997. It was not brought to the Court’s notice the first time the appeal was heard.

When the matter was reheard, the Court was informed that the submissions regarding precluding teachers from the scope of the definition of ‘employee’ stemmed from the precedent in Ahmedabad Pvt Primary Teachers Association case. However, the said issue was no longer res integra after the statutory amendment.

The reason for the Parliament to amend the provisions of Gratuity Act to bring teachers under the purview of the Act was clear from the Statement of Objects and reasons of the Amendment Bill which reads,

“Keeping in view the observations of the Hon’ble Supreme Court, it is proposed to widen the definition of ‘employee’ under the said Act in order to extend the benefit of gratuity to the teachers.”

This amendment was given a retrospective effect starting from April 3, 1997. The amended definition of the word ‘employee’ is,

“(e) “employee” means any person (other than an apprentice) who is employed for wages, whether the terms of such employment are express or implied, in any kind of work, manual or otherwise, in or in connection with the work of a factory, mine, oilfield, plantation, port, railway company, shop or other establishment to which this Act applies, but does not include any such person who holds a post under the Central Government or a State Government and is governed by any other Act or by any rules providing for payment of gratuity.”

In light of this amendment, the Court noted that decision in Ahmedabad Pvt Primary Teachers Association loses its binding effect. The Court thus dismissed the appeal with costs of Rs. 25,000.





Payment of Gratuity Act not applicable to temples in Karnataka

[Read Judgment]

The Karnataka High Court on Thursday clarified that the Payment of Gratuity Act, 1972 (Gratuity Act) would not apply to temples in the State. Consequently, temple employees are not eligible to claim gratuity under the 1972 Act, the Court ruled.

A Full Bench comprising Justices BV Nagarathna, KN Phaneendra and BA Patil passed a judgment to this effect, upon finding that temples in Karnataka do not fall under the definition of "establishment" or "commercial establishment", to which the Gratuity Act is applicable. The Court arrived at this conclusion on finding that temples were not treated as an "establishment" as defined in the Karnataka's Shops and Commercial Establishments legislation.

Section 1(3)(b) of the Gratuity Act provides that it would apply to all establishments employing ten or more persons. The term "establishment" would be defined as per the prevailing State laws, the Section further states. At present, the only legislation defining an "establishment" in Karnataka is the Karnataka Shops and Commercial Establishments Act, 1961.

Adverting to the said definition, the Court a ‘Temple’ as defined in Clause (27) of Section 2 of the Karnataka Hindu Religious Institutions and Charitable Endowments Act, 1997, does not answer the description of “commercial establishment” within the meaning of Clause (e) of Section 2 of the Karnataka Shops and Commercial Establishments Act, 1961.

Hence, the Payment of Gratuity Act would be inapplicable to Temples.

The Court ruled,

"The definition of establishment is exhaustive and not inclusive, it means a shop or a commercial establishment… it is apparent that, it does not extend to a temple. In other words, a temple is not a shop…a temple is excluded from the definition of commercial establishment, as it is not notified by the State Government and hence, is not included within the latter portion of the definition as of now...

....temple would not come within the expression of commercial establishment. A temple is a religious institution used as a place of public religious worship dedicated to or for the benefit of or used as of right by the Hindu community or any section thereof as a place of public religious worship ... the appellant being a temple cannot by any stretch of imagination be construed as an establishment under the provisions of the Act of 1961. No other enactment is brought to our notice which deals with shops and commercial establishment for beneficial consideration.

... a ‘Temple’ as defined in Clause (27) of Section 2 of the Karnataka Hindu Religious Institutions and Charitable Endowments Act, 1997, does not answer the description of “commercial establishment” within the meaning of Clause (e) of Section 2 of the Karnataka Shops and Commercial Establishments Act, 1961 and hence, the Payment of Gratuity Act, 1972 is inapplicable to it..."

Government Servant Not Entitled To Full Pension/Gratuity During Pending Disciplinary/Judicial Proceedings: Allahabad High Court



The Allahabad High Court has held that a Government servant is not entitled to full pension/death cum-retirement gratuity on/or during pending disciplinary/judicial proceedings against the government servant.

The full bench comprising of Justice Pankaj Mithal, Justice Suneet Kumar and Justice Rohit Ranjan Agarwal observed that the entitlement to full pension /death-cum-retirement gratuity to the government servant is subject to the outcome of the disciplinary/judicial proceedings and issue of final orders thereon by the competent authority. The bench was considering a reference to it on the issue of entitlement of the government servant to receive death cum-retirement gratuity on superannuation or otherwise pending judicial proceedings.

The court upheld a division bench judgment view that the term 'pension' would include 'gratuity' particularly in Article 351, 351-A of the Civil Service Regulations. Referring to these regulations, the bench observed:


Section 2A. CONTINUOUS SERVICE. -

an employee shall be said to be in continuous service even his/her service in interrupted by way
  • sickness,
  • accident,
  • leave,
  • absence from duty without leave,
  • leave with full wage,
  • temporary disablement,
  • laid-off period,
  • maternity leave : 26 weeks (THE PAYMENT OF GRATUITY (AMENDMENT) ACT, 2018)
whether such uninterrupted or interrupted service was rendered before or after the commencement of this Act.

In case of period of one year

Employee will be treated as he in continuous service, if he is employed by employer for the period of
  • 190 days employment under the ground in mines, or in establishment which works less than 6 days in a week.
  • 240 days in case of other any establishments (factories, companies, etc.)
In case of period of 6 months

Employee will be treated as he in continuous service, if he is employed by employer for the period of
  • 95 days employment under the ground in mines, or in establishment which works less than 6 days in a week.
  • 120 days in case of other any establishments (factories, companies, etc.)
In case of seasonal establishments

An employee of a seasonal establishment shall be deemed to be in continuous service if he has actually worked for not less than 75% of the numbers of days on which the establishment was in operation during the 1 year or 6 months.

Seasonal Establishments in which, although work is carried on throughout the year, the number of employees is regularly subject to seasonal fluctuations for reasons associated with the weather, their sales or their location. For example, hotels and restaurants in health spas and holiday resorts, gravel and sand pits and stone quarries are deemed to be seasonal establishments.


Section- 3. CONTROLLING AUTHORITY. –

The appropriate Government may, by notification, appoint any officer to be a controlling authority, who shall be responsible for the administration of this Act and different controlling authorities may be appointed for different areas.


Section- 4. PAYMENT OF GRATUITY.-

(1) Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than 5years, -

(a) on his superannuation, or

(b) on his retirement or resignation, or

(c) on his death or disablement due to accident or disease :

Provided that the completion of continuous service of 5 years shall not be necessary where the termination of the employment of any employee is due to death or disablement:

Provided further that in the case of death of the employee, gratuity payable to him shall be paid to his nominee or, if no nomination has been made, to his heirs, and where any such nominees or heirs is a minor, the share of such minor, shall be deposited with the controlling authority who shall invest the same for the benefit of such minor in such bank or other financial institution, as may be prescribed, until such minor attains majority.

Explanation. - For the purposes of this section, disablement means such disablement as incapacitates an employee for the work which he, was capable of
performing before the accident or disease resulting in such disablement.


Gratuity Payable On Resignation of employee After 5 Years Of Continuous Service: Supreme Court of India


Rajasthan State Road Transport Corporation Ltd. & Ors. Versus Smt. Mohani Devi & Anr
CIVIL APPEAL NO. 2236 OF 2020
(Arising out of SLP (Civil) No.5650 of 2019)

The Court was considering an appeal filed by Rajasthan State Road Transport Corporation Ltd. against the High court judgment which had allowed the writ petition filed by the wife of a deceased employee claiming the retiral benefits.

After his application seeking voluntary retirement was not acted upon, the employee had submitted his resignation as he claimed to be under depression and his health condition had further deteriorated. This resignation was accepted. It was after he died, his wife approached the High Court. The High Court directed to treat it as voluntarily retirement and release the retiral benefits to which he was entitled.

Allowing the appeal, the bench observed that pending disciplinary proceedings if an application for voluntary retirement is submitted there would be no absolute right seeking for acceptance since the employer if keen on proceeding with the inquiry would be entitled not to consider the application for voluntary retirement. However, the bench observed:

" As rightly pointed out by the learned counsel for the respondents, Section 4(1)(b) of the Payment of Gratuity Act, 1972 provides that the gratuity shall be payable if the termination of employment is after 5 years of continuous service and such termination would include resignation as well. In that view, if the gratuity amount has not been paid to the respondent's husband, the liability to pay the same would subsist and the respondent No. 1 will be entitled to receive the same in accordance with the provisions of the Act. In that regard it is directed that the appellants shall accordingly calculate the gratuity and pay the same to the respondent No. 1, if already not paid. Such payment shall be made within four weeks from this date"

https://www.livelaw.in/top-stories/gratuity-payable-on-resignation-also-155305

Sec 4(2) For every completed year of service or part thereof in excess of six months, the employer shall pay gratuity to an employee at the rate of fifteen days wages based on the rate of wages last drawn by the employee concerned: 

Provided that in the case of a piece-rated employee, daily wages shall be computed on the average of the total wages received by him for a period of three
months immediately preceding the termination of his employment, and, for this purpose, the wages paid for any overtime work shall not be taken into account.:

Provided further that in the case of [an employee who is employed in a seasonal establishment and who is riot so employed throughout the year], the employer shall pay the gratuity at the rate of seven days wages for each season.

Explanation: In the case of a monthly rated employee, the fifteen days wages shall be calculated by dividing the monthly rate of wages last drawn by him by twenty-six and multiplying the quotient by fifteen.

Calculation of gratuity [Sec 4 (2)]

  Gratuity = Monthly salary X  15 X Number of years of service
                        26
  • Monthly salary= last month drawn salary by the employee.
  • 26 = total number of working days in a month.
  • 15 = number of days in half of the month.
Illustration : for monthly salaried employees

Gratuity = (Basic + DA) x 15/26 x number of years.

Example: If an employee had joined a job on 01-08-2004 and retired or got his job terminated on 30-04-2018, with last drawn basic Salary of Rs 30,000 and DA of Rs 13000, his Gratuity will be:

(Rs 30,000+Rs 13000)x 15/26 x 14 = Rs 3,47,307.70/-

Note: Here the employee has completed 14 years of service. The seven months of his first year (August 2005 to March 2006) is to be counted as one year as it is more than six months of service.

Illustration : for seasonal employees

In the case of seasonal employees, 7 days wages for each season of service completed by the employee is considered for calculation. Rest of the formula is same as monthly-rated employees.

For example: If a seasonal employee retires after working from 2006 to 2016, working one season each year, with Rs 11000 Basic and Rs 7000 DA, his gratuity will be

7/26 x (Rs 11000+7000) x 11 = Rs 53,307.70/-

Note: Here the employee has worked for one season every year. Hence, the total season is 11

Download gratuity withdrawal  Form I

Different types of forms of gratuity

Form Name Use of Form
Gratuity Form I
Application for the payment of gratuity
Gratuity Form J Used by the nominee to make application for payment of gratuity
Gratuity Form K Used by legal heir to make application for the payment of gratuity
Gratuity Form F To make nomination
Gratuity Form G To make fresh nomination
Gratuity Form H Modification of nomination
Gratuity Form L Issued by the employer to employee stating amount and date of payment
Gratuity Form M Issued by the employer stating the reason for the rejection of gratuity
Gratuity Form N Application made to the labour commissioner by an employee
Gratuity Form 0 Issued by the authority to appear for case hearing
Gratuity Form P Summons issued by the authority to be present for hearing
Gratuity Form R Issued by the authority directing to make gratuity payment



[Sec 4(3)] The maximum amount of gratuity payable to an employee shall not exceed 3, 50,000/- rupees.  (According to the amendment in the 2010, the maximum gratuity payable amount was increased to rupees 10,00,000/-)

According to the  (THE PAYMENT OF GRATUITY (AMENDMENT) ACT, 2018) The maximum amount of gratuity payable to an employee shall not exceed 20,00,000/- rupees.


Sec 4 (4) For the purpose of computing the gratuity payable to an employee who is employed, after his disablement, on reduced wages, his wages for the period preceding his disablement shall be taken to be the wages received by him during that period, and his wages for the period subsequent to his disablement shall be taken to be the wages as so reduced.

Sec 4 (5) Nothing in this section shall affect the right of an employee to receive better terms of gratuity under any award or agreement or contract with the emloyer.

Y.K. Singla v. Punjab National Bank and others (2006) 8 SCC 514 ,
The position has been reiterated holding that the employee has to make a choice between the two for drawing the benefit of gratuity and the choice has a statutory protection under sub-Section (5) of Section 4 of the Act.

Beed District Central Coop. Bank Ltd. v. State of Maharashtra and others (2006) 8 SCC 514
It has been held that the expression ‘terms’ as appearing under sub-Section (5) of Section 4 of the Act must ordinarily mean all terms to the contract and that the employee is not entitled to best terms of both the statute and the contract.

When better terms are offered, a workman takes it as a part of the package. He may volunteer therefor, he may not. Sub-section (5) of Section 4 of the 1972 Act provides for a right in favour of the workman. Such a right may be exercised by the workman concerned. He need not necessarily do it. It is
the right of individual workman and not all the workmen.

While interpreting even a beneficent statute, like, the Payment of Gratuity Act, we are of the opinion that either contract has to be given effect to or the statute. The provisions of the Act envisage for one scheme. It could not be segregated. Sub-section (5) of Section 4 of the 1972 Act does not contemplate that the workman would be at liberty to opt for better terms of the contract, while keeping the option open in respect of a part of the statute. While reserving his right to opt for the beneficent provisions of the statute or the agreement, he has to opt for either of them and not the best of the terms of the statute as well as those of the contract. He cannot have both. If such an interpretation is given, the spirit of the Act shall be lost.....

Claim for gratuity in excess of ceiling -  Payment of Gratuity Act 1975, Section 4(5) to apply, there must be two alternatives, one in terms of the Act and one as per the award or agreement or contract with the employer. : Supreme Court of India

BCH Electric Limited Vs. Pradeep Mehra

Civil Appeal No.2379 of 2020 (arising out of SLP (C) NO.5269 of 2019)




Facts of the Case
  • In the year 1979, the company (BCH Electric Limited) had framed its gratuity payment scheme for those employees who were not covered under the Act.
  • In the year 2012, the Pradeep Mehra (Employee) resigned from the company after 12 years of service in the said company. Later he raised a gratuity claim of Rs.1,83,75000/.
  • The company took the stand that he was eligible to gratuity amount of Rs 10,00,000/- only, as per the upper limit fixed by Section 4(3) of the Act, which states that the maximum amount of gratuity payable to an employee shall not exceed 10,00,000 - rupees. (According to the amendment in the 2010).
The issue was whether the Pradeep Mehra, was covered under the gratuity scheme formulated by the company in 1979, or under the terms of the Payment of Gratuity Act 1975

Court held that


“as provided in the Rules of Scheme” Rule 6(b) of the Rules clearly stipulates that notwithstanding the Scheme of the Company, if any member is covered by the Act, the amount of gratuity shall be calculated in accordance with the provisions of the Act.

If the amount is to be so calculated according to the provisions of the Act, in case of employees covered by the provisions of the Act, there is no other alternative which is offered by the Company or which is part of any award or agreement or contract entered into between the employer and employees.

"The Trust Deed and the Scheme sought to devise an apparatus and make provision for those who were otherwise not covered by the Act and for this reason contemplated two kinds of employees. The Trust Deed and the Scheme were executed and formulated in the year 1979 when the wage-bracket was a definite parameter for an employee to be covered under the Act. The intent of the Trust Deed and the Scheme has to be understood in that perspective. The idea was not to afford to the employees who are covered by the provisions of the Act, a package better than what was made available by the Act, but it was to extend similar benefit to those who would not be covered by the Act."


"for Section 4(5) to apply there must be two alternatives, one in terms of the Act and one as per the award or agreement or contract with the employer."

Further, referring to Beed District Central Cooperative Bank Ltd, the gratuity scheme provided by the employer had better rate for computing gratuity but the ceiling limit was lower; whereas the entitlement under the provisions of the Act was at a lesser rate but the ceiling prescribed by the Act was higher than what was provided by the employer. -   the bench stated that an employee cannot choose a combination of the scheme of the employer and the scheme under the Act.

Hence, it was not a case where the employee had the alternative options of the contractual scheme and the statutory scheme, as the respondent was not at all covered under the company's scheme.

This Court laid down that an employee must take complete package as offered by the employer or that which is available under the Act and he could not have synthesis or combination of some of the terms under the scheme provided by the employer while retaining the other terms offered by the Act. That was a situation where two alternatives were available to the employee.

Ref: https://www.livelaw.in

Deduction of gratuity

[Sec 4(6) (a)] Notwithstanding anything contained in sub-section (i),

(a) the gratuity of an employee, whose services have been terminated for any act, wilful omission or negligence causing any damage or loss to, or destruction of, property belonging to the employer, shall be forfeited to the extent of the damage or loss so caused.


[Sec 4(6) (b)] the gratuity payable to an employee [may be wholly or partially forfeited]
  • If the services of such employee have been terminated for his riotous or disorderly conduct or any other act of violence on his part, or
  • if the services of such employee have been terminated for any act which constitutes an offence involving moral turpitude, provided that such offence is committed by him in the course of his employment.
Payment of gratuity is not applicable to employee who has been dismissed from the service for the reason of indiscipline or misconduct.

In the case of Babu Ram V. Phoenix Mills (1999 (1) labour law Journal 2 58), the court held that there was a service of petitioner has been terminated by dismissal, it cannot be said that he was in continuous service from the date of employment will the date of superannuation.


Withholding the payment of gratuity during the pendency of the disciplinary proceedings for ordering the recovery from gratuity.: Supreme Court of India

Chairman ­cum ­Managing Director, Mahanadi Coalfields Limited Vs Sri Rabindranath Choubey
CIVIL APPEAL NO. 9693 OF 2013



Facts  of the case
Respondent was an employee occupying the position as Chief General manager in the appellant coal company. There was very serious allegation of misconduct alleging dishonestly causing coal stock shortages amounting to Rs.31.65 crores and thereby causing substantial loss to the employer. The employee was thereafter suspended  from service, pending departmental enquiry against him, attained 60 years of age and got superannuated. later his payment of gratuity was withheld by the employer and the said case came before the Supreme Court of india.

Court held that
Several service benefits would depend upon the outcome of the inquiry, such as concerning the period during which inquiry remained pending. It would be against the public policy to permit an employee to go scot­free after collecting various service benefits to which he would not be entitled, and the event of superannuation cannot come to his rescue and would amount to condonation of guilt. Because of the legal fiction provided under the rules, it can be completed in the same manner as if the employee had remained in service after superannuation, and appropriate punishment can be imposed. Various provisions of the Gratuity Act discussed above do not come in the way of departmental inquiry and as provided in Section 4(6).

"Withholding the gratuity payment during the pendency of the disciplinary proceedings of an employee and it further permits for ordering the recovery from gratuity of the whole to be paid to an employee or recovery of gratuity to the extent of any pecuniary loss caused to the company, if have been guilty of offences/misconduct as mentioned in sub­section (6) of Section 4 of the Payment of Gratuity Act 1972, or to have caused pecuniary loss to the company by misconduct or negligence, during his service".

Gratuity Can Be Denied Only When There Is Termination On Account Of Misconduct: Supreme Court of India.


[Read Judgment]

The Supreme Court in Jorsingh Govind Vanjari Vs. Divisional Controller Maharashtra, State Road Transport Corporation, has held that in order to deny gratuity to an employee, it is not enough that the alleged misconduct of the employee constitutes an offence involving moral turpitude as per the report of the domestic inquiry, but there must be termination on account of the alleged misconduct, which constitutes an offence involving moral turpitude.



For forfeiture of gratuity U/s 4(6) (b) of Payment of Gratuity Act 1972 , issuance of order of termination is necessary  : Reiterates Bombay HC


[Read Judgment]


Shri. Shankar Dadoba Naik V/s. Maharashtra State Road Transport Corporation, Palghar Division and others

CIVIL APPELLATE JURISDICTION
WRIT PETITION NO. 9349 OF 2012


Facts of the case
  • Here in this case, petitioner is an employee of the respondent State road transportation Corporation, was appointed as conductor in their 2003.
  • In the same year he was dismissed from the service due to serious defaults were noticed when his bus was checked.
  • On the dismissal order, in the year 2003 the Petitioner filed a case in the industrial court against the organisation, but the case was dismissed.
  • Petitioner aggrieved by industrial court order, he filed a writ petition in the High Court of Bombay in the year 2010.
  • His petition was admitted on 20/12/2010 and statusquo was directed to be maintained with regard to the employment of the petitioner during pendency of the petition.
  • State Road transport Corporation served show cause notice on employee as to why his gratuity not to be fortified under the law? For which, the employee replied that he was not terminated from the service according to the interim order by the High Court of Bombay. But,gratuity of employee was forfeited by organisation.

Court held that

"Some of the important admitted facts which are required to be appreciated are, petitioner was served final show cause notice proposing dismissal of services on 07/07/2003. Against such show cause notice, in a petition before this Court on 20/12/2010, an interim relief as regards maintaining statusquo
as regards services of the petitioner came to be passed. As a consequence of above, petitioner continued in the employment of the respondent Corporation
and stood superannuated. Even if said petition was withdrawn, however, same was in the backdrop of his superannuation. The respondent employer
has never objected for the withdrawal of the petition nor insisted for permission to serve the order of termination during pendency of the petition."

In case of forfeiture of gratuity under The Payment of Gratuity Act, 1972, issuance of order of termination is held to be imperative for the purpose of invoking provisions of Section 4 Sub Section (6) of the Act as is held in the matter of Jaswant Singh Gill

the fact remains that petitioner was never charge sheeted nor convicted for an offence involving moral turpitude as is prescribed under the provisions of clause (b) of Sub Section (6) of Section 4 of the Act.

Respondent is directed to release gratuity of the petitioner with Statutory interest thereof within period of 3 months from today.



COMPULSORY INSURANCE. [Sec 4A]

(1) With effect from such date as may be notified by the appropriate Government in this behalf, every employer, other than an employer or an establishment belonging to, or under the control of, the Central Government or a State Government, shall, subject to the provisions of sub-section (2), obtain an insurance in the manner prescribed, for his liability for payment towards the gratuity under this Act, from the Life Insurance Corporation of India established under the Life Insurance Corporation of India Act, 1956 (31 of 1956) or any other prescribed insurer : Provided that different dates may be appointed for different establishments or class of establishments or for different areas.

(2) The appropriate Government may, subject to such conditions as may be prescribed, exempt every employer who had already established an approved gratuity fund in respect of his employees and who desires to continue such arrangement, and every employer employing five hundred or more persons who establishes an approved gratuity fund in the manner prescribed from the provisions of sub-section (1).

(3) For the purpose of effectively implementing the provisions of this section, every employer shall within such time as may be prescribed get his establishment registered with the controlling authority in the prescribed manner and no employer shall be registered under the provisions of this section unless he has taken an insurance referred to in sub-section (1) or has established an approved gratuity fund referred to in sub-section (2).

(4) The appropriate Government may, by notification, make rules to give effect to the provisions of this section and such rules may provide for the composition of the Board of Trustees of the approved gratuity fund and for the recovery by the controlling authority of the amount of the gratuity payable to an employee from the Life Insurance Corporation of India or any other insurer with whom an insurance has been taken under sub-section (1), or as the case may be, the Board of Trustees of the approved gratuity fund.

(5) Where an employer fails to make any payment by way of premium to the insurance referred to in sub-section (1) or by way of contribution to an approved gratuity fund referred to in sub-section (2), he shall be liable to pay the amount of gratuity due under this Act (including interest, if any, for delayed payments) forthwith to the controlling authority.


Forfeiture of gratuity is permissible only if the termination of an employee is for any misconduct which constitutes an offence involving moral turpitude, and convicted accordingly by a court : Supreme Court of India



[Read Judgement]


CIVIL APPEAL NO. 8251 OF 2018
(Arising out of S.L.P.(Civil) No. 3852/2017)

UNION BANK OF INDIA AND OTHERS Vs C.G. AJAY BABU AND ANOTHER

Facts of the Case
Respondent is a branch manager in the UNION BANK OF INDIA and disciplinary proceedings were initiated against him on the misconduct proved against you amounts to acts involving moral turpitude. the following are the charges:

a) Failure to take all steps to ensure and protect the interest of the Bank.
b) Failure to discharge his duties with utmost devotion, diligence, honesty and integrity.
c) Doing acts unbecoming of an Officer Employee.

On the charges being duly established, the respondent was dismissed from service on 03.06.2004 and his gratuity was forfeited by order dated 20.04.2004 in accordance of the provisions of section 4, subsection 6(b)(ii) of the Gratuity Act, 1972.

The dismissal and forfeiture were the subject matters of challenge before the Court.

Court held that
Though the learned Counsel for the appellant-Bank has contended that the conduct of the respondent-employee, which leads to the framing of charges in the departmental proceedings involves moral turpitude, we are afraid the contention cannot be appreciated. It is not the conduct of a person involving moral turpitude that is required for forfeiture of gratuity but the conduct or the act should constitute an offence involving moral turpitude. To be an offence, the act should be made punishable under law. That is absolutely in the realm of criminal law. It is not for the Bank to decide whether an offence has been committed. It is for the court. Apart from the disciplinary proceedings initiated by the appellant- Bank, the Bank has not set the criminal law in motion either by registering an FIR or by filing a criminal complaint so as to establish that the misconduct leading to dismissal is an offence involving moral turpitude. Under sub-Section (6)(b)(ii) of the Act, forfeiture of gratuity is permissible only if the termination of an employee is for any misconduct which constitutes an offence involving moral turpitude, and convicted accordingly by a court of competent
jurisdiction.

In the present case, there is no conviction of the respondent for the misconduct which according to the Bank is an offence involving moral turpitude. Hence, there is no justification for the forfeiture of gratuity on the ground stated in the order dated 20.04.2004 that the “misconduct proved against you amounts to acts involving moral turpitude”.

To sum-up, forfeiture of gratuity is not automatic on dismissal from service; it is subject to sub-Sections (5) and (6) of Section 4 of The Payment of Gratuity Act, 1972.

PENALTIES

[Sec 4A (6)]

Whoever contravenes the provisions of sub-section (5) shall be punishable with fine which may extend to ten thousand rupees and in the case of a continuing offence with a further fine which may extend to one thousand rupees for each day during which the offence continues.

Explanation : In this section “approved gratuity fund” shall have the same meaning as in clause (5) of section 2 of the Income-tax Act, 1961 (43 of 1961).


POWER TO EXEMPT. [Sec 5]

(1) The appropriate Government may, by notification, and subject to such conditions as may be specified in the notification, exempt any establishment, factory, mine, oilfield, plantation, port, railway company or shop to which this Act applies from the operation of the provisions of this Act if, in the opinion of the appropriate Government, the employees in such establishment, factory, mine, oilfield, plantation, port, railway company or shop are in receipt of gratuity or pensionary benefits not less favourable than the benefits conferred under this Act.

(2) The appropriate Government may, by notification and subject to such conditions as may be specified in the notification, exempt any employee or class of employees employed in any establishment, factory, mine, oilfield, plantation, port, railway company or shop to which this Act applies from the operation of the provisions of this Act, if, in the opinion of the appropriate Government, such employee or class of employees are in receipt of gratuity or pensionary benefits not less favourable than the benefits conferred under this Act.

(3) A notification issued under sub-section (1) or sub-section (2) may be issued retrospectively a date not earlier than the date of commencement of this Act, but no such notification shall be issued so as to prejudicially affect the interests of any person


NOMINATION. [Sec 6]

(1) Each employee, who has completed one year of service, shall make, within such time, in such form and in such manner, as may be prescribed, nomination for the purpose of the second proviso to sub-section (1) of section 4.

(2) An employee may in his nomination, distribute the amount of gratuity payable to him, under this Act amongst more than one nominee.

(3) If an employee has a family at the time of making a nomination, the nomination shall be made in favour of one or more members of his family, and any nomination made by such employee in favour of a person who is not a member of his family, shall be void.

(4) If at the time of making a nomination the employee has no family, the nomination may be made in favour of any person or persons but if the employee subsequently acquires a family, such nomination shall forthwith become invalid and the employee shall make, within such time as may be prescribed, a fresh nomination in favour of one or more members of his family.

(5) A nomination may, subject to the provisions of sub-sections (3) and (4), be modified by an employee at any time, after giving to his employer a written notice in such form and in such manner as may be prescribed, of his intention to do so.

(6) If a nominee predeceases the employee, the interest of the nominee shall revert to the employee who shall make a fresh nomination, in the prescribed form, in respect of such interest.

(7) Every nomination, fresh nomination or alteration of nomination, as the case may be, shall be sent by the employee to his employer, who shall keep the same in his safe custody.


DETERMINATION OF THE AMOUNT OF GRATUITY. [Sec 7]

(1) A person who is eligible for payment of gratuity under this Act or any person authorised, in writing, to act on his behalf shall send a written application to the employer, within such time and in such form, as may be prescribed, for payment of such gratuity.

(2) As soon as gratuity becomes payable, the employer shall, whether an application referred to in sub-section (1) has been made or not, determine the amount of gratuity and give notice in writing to the person to whom the gratuity is payable and also to the controlling authority specifying the amount of gratuity so determined.

(3) The employer shall arrange to pay the amount of gratuity within thirty days from the date it becomes payable to the person to whom the gratuity is payable.

(3A) If the amount of gratuity payable under sub-section (3) is not paid by the employer within the period specified in sub-section (3), the employer shall pay, from the date on which the gratuity becomes payable to the date on which it is paid, simple interest at such rate, not exceeding the rate notified by the Central Government from time to time for repayment of long-term deposits, as that Government may, by notification specify : Provided that no such interest shall be payable if the delay in the payment is due to the fault of the employee and the employer has obtained permission in writing from the controlling authority for the delayed payment on this ground.

(4) (a) If there is any dispute as to the amount of gratuity payable to an employee under this Act or as to the admissibility of any claim of, or in relation to, an employee for payment of gratuity, or as to the person entitled to receive the gratuity, the employer shall deposit with the controlling authority such amount as he admits to be payable by him as gratuity.

(b) Where there is a dispute with regard to any matter or matters specified in clause (a), the employer or employee or any other person raising the dispute may make an application to the controlling authority for deciding the dispute.

(c) The controlling authority shall, after due inquiry and after giving the parties to the dispute a reasonable opportunity of being heard, determine the matter or matters in dispute and if, as a result of such inquiry any amount is found to be payable to the employee, the controlling authority shall direct the employer to pay such amount or, as the case may be, such amount as reduced by the amount already deposited by the employer.

(d) The controlling authority shall pay the amount deposited, including the excess amount, if any, deposited by the employer, to the person entitled thereto.

(e) As soon as may be after a deposit is made under clause (a), the controlling authority shall pay the amount of the deposit –

(i) to the applicant where he is the employee; or

(ii) where the applicant is not the employee, to the nominee or, as the case may be, the guardian of such nominee or heir of the employee if the controlling authority is satisfied that there is no dispute as to the right of the applicant to receive the amount of gratuity.

(5) For the purpose of conducting an inquiry under sub-section (4), the controlling authority shall have the same powers as are vested in a court, while trying a suit, under the Code of Civil Procedure, 1908 (5 of 1908), in respect of the following matters, namely :-

(a) enforcing the attendance of any person or examining him on oath;

(b) requiring the discovery and production of documents;

(c) receiving evidence on affidavits;

(d) issuing commissions for the examination of witnesses.

(6) Any inquiry under this section shall be a judicial proceeding within the meaning of sections 193 and 228, and for the purpose of section 196, of the Indian Penal Code, 1860 (45 of 1860).

(7) Any person aggrieved by an order under sub-section (4) may, within sixty days from the date of the receipt of the order, prefer an appeal to the appropriate Government or such other authority as may be specified by the appropriate Government in this behalf : Provided that the appropriate Government or the appellate authority, as the case may be, may, if it is satisfied that the appellant was prevented by sufficient cause from preferring the appeal within the said period of sixty days, extend the said period by a further period of sixty days.

Provided further that no appeal by an employer shall be admitted unless at the time of preferring the appeal, the appellant either produces a certificate of the controlling authority to the effect that the appellant has deposited with him an amount equal to the amount of gratuity required to be deposited under sub-section (4), or deposits with the appellate authority such amount.

(8) The appropriate Government or the appellate authority, as the case may be, may, after giving the parties to the appeal a reasonable opportunity of being heard, confirm, modify or reverse the decision of the controlling authority.


INSPECTORS. [Sec 7A]

(1) The appropriate Government may, by notification, appoint as many Inspectors, as it deems fit, for the purposes of this Act.

(2) The appropriate Government may, by general or special order, define the area to which the authority of an Inspector so appointed shall extend and where two or more Inspectors are appointed for the same area, also provide, by such order, for the distribution or allocation of work to be performed by them under this Act.

(3) Every Inspector shall be deemed to be a public servant within the meaning of section 21 of the Indian Penal Code, 1860 (45 of 1860).


POWERS OF INSPECTORS. [Sec 7B]

(1) Subject to any rules made by the appropriate Government in this behalf, an Inspector may, for the purpose of ascertaining whether any of the provisions of this Act or the conditions, if any, of any exemption granted thereunder, have been complied with, exercise all or any of the following powers, namely :-

(a) require an employer to furnish such information as he may consider necessary;

(b) enter and inspect, at all reasonable hours, with such assistants (if any),

being persons in the service of the Government or local or any public authority, as he thinks fit, any premises of or place in any factory, mine, oilfield, plantation, port, railway company, shop or other establishment to which this Act applies, for the purpose of examining any register, record or notice or other document required to be kept or exhibited under this Act or the rules made thereunder, or otherwise kept or exhibited in relation to the employment of any person or the payment of gratuity to the employees, and require the production thereof for inspection;

(c) examine with respect to any matter relevant to any of the purposes aforesaid, the employer or any person whom he finds in such premises or place and who, he has reasonable cause to believe, is an employee employed therein;

(d) make copies of, or take extracts from, any register, record, notice or other document, as he may consider relevant, and where he has reason to believe that any offence under this Act has been committed by an employer, search and seize with such assistance as he may think fit, such register, record, notice or other document as he may consider relevant in respect of that offence;

(e) exercise such other powers as may be prescribed.

(2) Any person required to produce any register, record, notice or other document or to give any information by an Inspector under sub-section (1) shall be deemed to be legally bound to do so within the meaning of sections 175 and 176 of the Indian Penal Code 1860 (45 of 1860).

(3) The provisions of the Code of Criminal Procedure, 1973 (2 of 1974) shall so far as may be, apply to any search or seizure under this section as they apply to any search or seizure made under the authority of a warrant issued under section 94 of that Code.


RECOVERY OF GRATUITY. [Sec 8]

If the amount of gratuity payable under this Act is not paid by the employer, within the prescribed time, to the person entitled thereto, the controlling authority shall, on an application made to it in this behalf by the aggrieved person, issue a certificate for that amount to the Collector, who shall recover the same, together with compound interest thereon at such rate as the Central Government may, by notification, specify, from the date of expiry of the prescribed time, as arrears of land revenue and pay the same to the person entitled thereto :

Provided that the controlling authority shall, before issuing a certificate under this section, give the employer a reasonable opportunity of showing cause against the issue of such certificate :

Provided further that the amount of interest payable under this section shall, in no case exceed the amount of gratuity payable under this Act


PENALTIES [Sec 9]
  • Employer who avoids the payment of the gratuity to the employees, shall be punishable with imprisonment for a term which may extend to 6 months, or with fine which may extend to 10,000/- rupees or with both.
  • If any person makes false statements or false representations, they shall be punishable with imprisonment for a term which may extend to 6 months, or with fine which may extend to 10,000/- rupees or with both.
  • Employer who disobeys the rules and regulation of the act, shall be punishable with imprisonment for a term which shall not be less than 3 months but which may extend to one year, or with fine which shall not be less than 10,000/- rupees but which may extend to 20,000/- rupees, or with both :

EXEMPTION OF EMPLOYER FROM LIABILITY IN CERTAIN CASES. [Sec 10] –

Where an employer is charged with an offence punishable under this Act, he shall be entitled, upon complaint duly made by him and on giving to the complainant not less than three clear days’ notice in writing of his intention to do so, to have any other person whom he charges as the actual offender brought before the court at the time appointed for hearing the charge; and if, after the commission of the offence has been proved, the employer proves to the satisfaction of the court – (a) that he has used due diligence to enforce the execution of this Act, and

(b) that the said other person committed the offence in question without his knowledge, consent or connivance, that other person shall be convicted of the offence and shall be liable to the like punishment as if he were the employer and the employer shall be discharged from any liability under this Act in respect of such offence :

Provided that in seeking to prove as aforesaid, the employer may be examined on oath and his evidence and that of any witness whom he calls in his support shall be subject to cross-examination on behalf of the person he charges as the actual offender and by the prosecutor :

Provided further that, if the person charged as the actual offender by the employer cannot be brought before the court at the time appointed for hearing the charge, the court shall adjourn the hearing from time to time for a period not exceeding three months and if by the end of the said period the person charged as the actual offender cannot still be brought before the court, the court shall proceed to hear the charge against the employer and shall, if the offence be proved, convict the employer.


COGNIZANCE OF OFFENCES. [Sec 11]

(1) No court shall take cognizance of any offence punishable under this Act save on a complaint made by or under the authority of the appropriate Government : Provided that where the amount of gratuity has not been paid, or recovered, within six months from the expiry of the prescribed time, the appropriate Government shall authorise the controlling authority to make a complaint against the employer, whereupon the controlling authority shall, within fifteen days from the date of such authorisation, make such complaint to a Magistrate having jurisdiction to try the offence.

(2) No court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try any offence punishable under this Act.

PROTECTION OF ACTION TAKEN IN GOOD FAITH. [Sec 12] –

No suit or other legal proceeding shall lie against the controlling authority or any other person in respect of anything which is in good faith done or intended to be done under this Act or any rule or order made thereunder.


PROTECTION OF GRATUITY. [Sec 13] –

No gratuity payable under this Act and no gratuity payable to an employee employed in any establishment, factory, mine, oilfield, plantation, port, railway company or shop exempted under section 5 shall be liable to attachment in execution of any decree or order of any civil, revenue or criminal court.


ACT TO OVERRIDE OTHER ENACTMENTS, ETC.[Sec 14] –

The provisions of this Act or any rule made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any enactment other than this Act or in any instrument or contract having effect by virtue of any enactment other than this Act.


POWER TO MAKE RULES. [Sec 15] -

(1) The appropriate Government may, by notification make rules for the purpose of carrying out the provisions of this Act. (2) Every rule made by the Central Government under this Act shall be laid, as soon as may be after it is made, before each House of Parliament while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the rule or both Houses agree that the rule should not be made, the rule shall, thereafter, have effect only in such modified form or be of no effect as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule.