GRATUITY: A GRATUITOUS OR A GRATITUDINAL PAYMENT

GRATUITY: A GRATUITOUS OR A GRATITUDINAL PAYMENT

–PRADEEP KUMAR

Image Source: Reuters.com

“Contrary to popular opinion, we are all a vast brotherhood of human beings whose very survival hinges not on what we keep, but on what we give. And it is in the giving that we not only survive to live another day, but we thrive to celebrate another day.”
― Craig D. Lounsbrough

INTRODUCTION: 

Workmen and employees particularly in industrial and commercial establishments- factories, mines, oilfields, plantations, ports, railway companies, shops or  establishments, and other such establishments work for others all their lives. Most of them have a hand-to-mouth existence, an existence in which they can have hardly enough savings at the end of the day. When they become old, inactive, reach the age of superannuation or retire  from their employment, they have nothing left to feed on. And if someone is disabled, becomes chronically ill, or God forbid, if the worst thing- death comes about, the family does not know how to fend  for themselves. What happens when someone voluntarily resigns from his service or is retrenched? Ever gave a thought?

Very few of them are covered under Provident Fund, ESI, Health Insurance or other Social Welfare Schemes.  In such hours of crisis gratuity is one such social security measure, which keeps his hopes alive and tells him that not all is lost, that people still have fond memories of him at work, that some still value his contributions.  Gratuity is, therefore, a statutory benefit given by the employer to his employee as gratitude in recognition of his continuous, meritorious services and earnest role in the growth of the organisation.   

The Payment of Gratuity Act,1972 was enacted with sole objective of providing gratuity – a dignified gesture of thanksgiving, a financial help in the needy hours, a monetary award in-lieu of services rendered in the past. It’s a wonderful piece of welfare legislation for helping out a person during unemployment, disability, retirement, superannuation and old age, and catering to the family in case of death of the sole bread winner.  

OVERVIEW OF THE PAYMENT OF GRATUITY ACT, 1972:

Constitutional Provisions: The Fundamental Rights under Chapter II of the Constitution of India, guarantees protection of life and personal liberty. Art. 21 is quoted asunder

“Art. 21. Protection of life and personal liberty.—No person shall be deprived of his life or personal liberty except according to procedure established by law.”

Similarly the relevant Articles under the Directive Principles of State Policy in Chapter IV of the Constitution are:

“38. State to secure a social order for the promotion of welfare of the people.—(1) The State shall strive to promote the welfare of the people by securing and protecting as effectively as it may a social order in which justice, social, economic and political, shall inform all the institutions of the national life.

(2) The State shall, in particular, strive to minimise the inequalities in income, and endeavour to eliminate inequalities in status, facilities and opportunities, not only amongst individuals but also amongst groups of people residing in different areas or engaged in different vocations.

39. Certain principles of policy to be followed by the State.—The State shall, in particular, direct its policy towards securing—

(a) that the citizens, men and women equally, have the right to an adequate means of livelihood;

(b) that the ownership and control of the material resources of the community are so distributed as best to sub-serve the common good;

(c) that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment;

(d) that there is equal pay for equal work for both men and women;

(e) that the health and strength of workers, men and women, and the tender age of children are not abused and that citizens are not forced by economic necessity to enter avocations unsuited to their age or strength;

xxx.

41. Right to work, to education and to public assistance in certain cases.—The State shall, within the limits of its economic capacity and development, make effective provision for securing the right to work, to education and to public assistance in cases of unemployment, old age, sickness and disablement, and in other cases of undeserved want.”

Again under Chapter IV A of Indian Constitution, we find:

 “51A. Fundamental duties.—It shall be the duty of every citizen of India—

xxx

(j) to strive towards excellence in all spheres of individual and collective activity so that the nation constantly rises to higher levels of endeavour and achievement;

xxx.”

However, all the above provisions of the Constitution indirectly hint at protection of life with dignity and personal liberty. None directly point to the provision of gratuity.

Brief History:  Initially there was no Central Act to regulate the payment of gratuity to industrial workers. Only the Employees’ Provident Fund & Miscellaneous Provisions Act, 1952 somewhat looked after the future providence of the employees.

However, Death-cum-Retirement Gratuity Schemes were in vogue in both Central and State Government Services.  The Public Sector Undertakings and some in the Private Sector had their own gratuity schemes/ gratuity funds more or less in the line of the Government Scheme, but the procedure was never uniform.

Before Sec. 25F was introduced in the Industrial Disputes Act, 1947 by the Industrial Disputes (Amendment) Act, 1953 (Act 43  of 1953),workmen were given the benefit of  both retrenchment compensation  and  gratuity by industrial  awards,  but the decisions   were not  always  uniform.  Ordinance V  was promulgated  on October 24, 1953, by Sec. 25E(b) wherein  it was provided that before a workman was retrenched he must be paid  at  the time of retrenchment gratuity which  shall  be equivalent to 15 days’ average pay for every completed year of service or any part thereof in excess of six months. The Ordinance  was followed by Act 43 of 1953, which was  deemed to  have  come into force on October 24, 1953; and  in the statement of aims and objects of the Act it was said “that a  workman  … shall not be retrenched until  he  has been given one month’s notice in writing or one month’s wages  in-lieu of such notice, and also a gratuity ….”  Sec. 25F (b)  of the ID Act was in the same terms as Sec.  25E (b)  of  the  Ordinance,  except that for the word “gratuity” the expression  “retrenchment compensation”  was substituted.

At this juncture the provisions for gratuity of Working Journalists were first and foremost inserted vide Working Journalists (Conditions of Service) and Miscellaneous Provisions Act, 1955. The law in respect of the Newspaper Establishments was enacted to implement the recommendations of the Press Commission, which had its object in regulating of the conditions of service of working journalists and other persons employed in newspaper establishments. Among other things, the Act provided for the payment of gratuity to a working Journalist who had been in continuous service for not less than 3 years, even if he voluntarily resigned from service. 

The constitutional validity  and the legality of the decision of the Wage Board, constituted thereunder, purporting to act under Sec. 9 of the Act was challenged in Express Newspapers (P) Ltd. Vs. Union of India. What was questioned was the constitutional validity of the Working Journalists (Conditions of Service) and Miscellaneous Provisions Act, 1955 and the legality of the decision on gratuity on completion of 3 years’ continuous service with retrospective effect, which according to the petitioner was also a double benefit.

The Constitutional Bench of the Supreme Court observed that gratuity is a scheme of retirement benefit and that the provision of gratuity was wholly an insufficient relief and there was nothing wrong in two retirement benefits when the finances of the concern permit the same to be allowed. The Court held that where, however, an employee voluntarily resigns from service of the employer after a period of only three years, there will be no justification, whatever, for awarding him a gratuity and any such provision of the type which has been made in  Sec. 5(1) (a) (iii) of the Act would certainly put  unreasonable restriction on the right to carry on business and is liable to be struck down as unconstitutional.

This necessitated the Government of India to make amendments in the WJ Act vide Working Journalists (Conditions of Service) and Miscellaneous Provisions (Amendment) Act, 1962 (Act 65 of 1962) w.e.f. 15.01.1963, inter alia, omitting the said provision.

Beforehand, there were only two State Laws having provisions  for  payment  of  gratuity.  These were the Kerala Industrial Employees’  Payment  of  Gratuity  Act,  1970  and  the  West  Bengal Employees’  Payment  of  Gratuity  Act,  1971. There was no central legislation governing gratuity of employees in industries and establishments, as such.

The question of having a central legislation on  the  subject was discussed at length in the Labour Minister’s Conference held on many  occasions and after a general   consensus   was  reached,   the   Central Government was prompted to frame an umbrella legislation for making provisions of gratuity, which brought out  the Payment of Gratuity Bill, 1971. The Bill was found too imperfect and was referred to the Select Committee of the Parliament for revamping in 1971. After several far-reaching modifications by the Select Committee the Payment of Gratuity Act, 1972 was finally passed by the Parliament, received the assent if the President and came into the Statute Book with effect from 21st August, 1972. The Act was brought  into  force  on 16th September, 1972. The Central Rules and other State Rules followed suit thereafter.

Again in Bakshish Singh Vs. Darshan Engineering Works on 11 October, 1993: [1994 AIR 251, 1994 SCC (1) 9] the provisions of Sec. 4(1) (b) of the Payment of Gratuity Act, 1972 were challenged on the ground of restriction being placed by the said provisions on the exercise of the Fundamental Right enshrined under clause (6) of Article 19(1)(g). The Apex Court, however, while distinguishing ‘superannuation’ and ‘retirement’, held that the said provisions are both sustainable and valid.

Applicability of the Act:  Any employer of a factory, mine, oilfield, plantation, port, railway company, shop or  establishment, and other such establishment where 10 or more persons are employed or were employed on any day of the preceding twelve months is liable to pay gratuity to its employees.  Once the Act becomes applicable, it continues even if the number of employees falls below ten.  The Act shall not be applicable to Government Establishments. The establishments which have more beneficial rules for gratuity shall not be guided by the Act.  

Entitlement:  An employee, who has rendered not less than five years of service, becomes entitled to gratuity on his superannuation or on his retirement or resignation or on his death or disablement. The pre-requisite of completion of continuous service of five years is not necessary where the termination of employment is due to death of disablement. Gratuity is payable to the nominee  in case of death of the employee. If no nomination has been made gratuity shall be payable to the legal heirs of the deceased employee. 

Eligibility: The essential pre-requisite for entitlement to gratuity is completion of continuous service of five years. The intention of the Legislature in enacting sub-Sec.(2) of  Sec.4 of  the Act was not only to achieve uniformity and reasonable degree of certainty, but also to create and  bring into force a self-contained, all-embracing,  complete  and  comprehensive  code relating  to gratuity as  a compulsory,  retiral benefit after a long period. However, the pre-requisite of completion of 5 years’ continuous service shall not be necessary where the termination of the employment of any employee is either due to disablement or death.

COMPULSORY GROUP GRATUITY INSURANCE:

Sec. 4A of the Act provides for the compulsory insurance to every employer other than those belonging to the Central Government or State Government through Life Insurance Corporation. However, those employers are exempted from this provision who have an established and registered gratuity fund in their company. The government may also make rules for the enforcement of this Sec.  as and when necessary. Violation of this provision by anyone may lead to penalty.

Only the State of  Andhra Pradesh has notified the Andhra Pradesh Compulsory Gratuity Insurance Rules, 2011 in exercise of powers under   Sec.15 (1) read with Sec. 4A of the Payment of Gratuity Act, and the same is also applicable to the State of Telangana. However, Sec. 4A remains un-notified for the rest of India. Life Insurance Corporation of India has a  Group Gratuity Cash Accumulation Plan, which is a very good Non-Linked, Non-participating Life Group Savings Insurance Plan. Though Sec. 4A has not been notified in most States, and hence not mandatory for the employers, the employers of new establishments may take advantage of the Group Gratuity Insurance. It is like saving a little in regular manner for the rainy days.

CONTINUOUS SERVICE :

According to Sec. 2 A of the Act,  continuous service means uninterrupted service.

(a) A continuous period of one year shall be treated if the employee during the period of 12 calendar months preceding the date with reference to calculation, has actually worked under the employer for not less than –

(i) 190 days, in case of below the ground,  in a mine or in an establishment which works for less than 6 days in a week; and

(ii) 240 days, in any other case;

(b) a continuous period of 6 months shall be calculated if the employee has actually worked under the employer for not less than –

(i) 95 days, in case of below the ground,  in a mine or in an establishment which works for less than 6 days in a week; and

(ii) 120 days, in any other case.

Explanation: The period of continuous service includes service which may be interrupted on account of sickness, accident, leave, absence from duty without leave (not being absence treated as break in service in accordance with the standing order, rules or regulations of the establishment), lay off, strike or a lock-out or cessation of work not due to any fault of the employee or maternity leave in case of female employee not exceeding 26 weeks. In case of an employee employed in a seasonal establishment, for any period of 1 year or 6 months, if the employee has worked for a period not less than 75 per cent of the number of days of operation he shall be treated to be in continuous service.

 While counting the period of continuous service, it is immaterial as to whether the services provided by the employees were regularised or not. In  Netram Sahu Vs. State of Chhattisgarh (Civil Appeal No.1254 of 2018) the appellant employee had  worked 22 years and 1 month as a daily wager and 3 years and 2 months as regular work-charged employee thus rendering 25 years and 3 months’ service in all. However, the Appellant was not paid the gratuity amount by the State after his retirement  on the ground that he had served only 3 years as a regular employee. The Hon’ble Supreme Court held that the Appellant had actually rendered the service for a period of 25 years., and accordingly ordered the State to release/pay gratuity benefit for entire period of 25 years to the appellant-employee with a litigation cost of Rs. 25,000/- only.

Further there is a distinction between the  definitions of “continuous service” in Secs. 25-B and 25-F of the Industrial Disputes Act, 1947, and Secs. 2A and 4(1)  of the  Payment of Gratuity Act, 1972. The phraseology in Sec. 25-F of the ID Act is different from the words used in Sec. 4(1) of the PG Act. For applicability of Sec.  25-F, it is enough that a workman has been in continuous service. The Payment of Gratuity Act does not use the words “has been in continuous service”, but the words used are “has rendered continuous service”. The insertion of the word “rendered” before the words “continuous service” makes a substantial difference to the concept and while continuity of service may be equated with a subsisting contract of employment, in a case where the concept is one of rendering service, not only must there be a contract of employment, but the employee must also render service,  which obviously he does not do on days when he is absent for reasons or in circumstances which do not fall within the events enumerated in the main part of the definition of “continuous service”.  (Bombay Union Dyeing & Bleaching Mills Vs. Shri Narayan Tukaram More & Another:  (1980) IILLJ 424 Bom).

 In    Lalappa Lingappa  and  Ors.  Vs.  Laxmi  Vishnu  Textile Mills., Ltd. [1981] 2 SCR 797 the meaning of the words and phrases- “continuous  service”, “actually employed” and “actually worked” have been explained.

WHAT IS THIS 4 YEARS 240 DAYS’ CONTINUOUS SERVICE, WE HEAR OF:

The Madras High Court in Mettur Beardsell Ltd. Vs. Regional Labour Commissioner (1998 LLR 1072) have held that the principle of pari materia provisions of Sec. 25-B of the ID Act are squarely  applicable in the case of the provisions of the Payment of Gratuity Act.  An employee rendering continuous service for a period of 240 days in a year will be deemed to have continued in service for  one year as stipulated by section 2A of the Act. Thus an employee who has put in service for 10 months and 18 days for the fifth year subsequent to first 4 years should be deemed to have completed continuous service of five years . Hence, his claim for gratuity is tenable. The Kerala High Court also took the same view in Sreeja. B Vs. Regional Joint Labour Commissioner (2015 LLR 826).

In case of employees working below the ground,  in a mine or in an establishment which works for less than 6 days in a week a continuous period of 4years and 190 days shall be treated as continuous service for 5 years so as to qualify for gratuity.

BADLI  WORKERS NOT  ELIGIBLE  FOR GRATUITY:

 In Lalappa Lingappa Case (supra)  it has been held by the Apex Court that  the badli workers do  not fall  within the substantive part of the definition of “continuous  service”,  but  are covered by  Explanation I to Sec. 2A (the number of days actually worked).  They are, therefore, not entitled to payment  of gratuity for the badli period i.e. in respect of the years in  which no  work was allotted to them due to their failure  to report to duty. Simply because a worker is required everyday  to  attend  the  mills  for ascertaining whether work  would be provided to him or not, he cannot be deemed to  have rendered  service and  would  not, on that account, be entitled to claim gratuity. Gratuity is paid for services rendered.

WHAT ABOUT FIXED TERM EMPLOYEES:

The employee appointed on the fixed term basis and contract extended from time to time, will also be gratuity under the provisions of Payment of Gratuity Act. Appointing an employee on fixed term basis is only a mode of employment against an existing vacancy, and such system cannot be allowed to curtail the rights of employees. 

DIFFERENCE BETWEEN SUPERANNUATION AND RETIREMENT:

Sec.  4(1) provides for payment of gratuity to the employee on the termination of his employment after he has rendered continuous service of not less than 5 years on the occurrence of any of the three events,  viz.,

(a) on the employee reaching his superannuation age, or

(b) on his retirement or resignation, or

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

However, in case of the third event, i.e. event (c)  the qualifying continuous service of 5  years is not necessary.

‘Retirement’ as defined in Sec. 2(q) of the Act means ‘termination of the service of an employee otherwise than on superannuation’. The first two, i.e. events (a) and (b)  are independent of each other. The age of superannuation is irrelevant when the gratuity is payable under clause (b) of Sec.  4(1) on retirement or resignation, the said clause being independent of clause (a) of that section which provided for payment of gratuity on attaining the age of superannuation.

In Bakshish Singh Vs. Darshan Engineering Works on 11 October, 1993: 1994 AIR 251, 1994 SCC (1) 9 Bakshish Singh, the appellant-employee joined the services of the respondent-M/s. Darshan Engineering Works as a Fitter on March 2, 1968 and resigned from service on December 10, 1978 after a total period of continuous service of more than 10 years. His last drawn wages were Rs 335 per month. It is not disputed that at the time he joined the employment on March 2, 1968, his age was 54 years 3 months, his date of birth being December 17, 1913. This was known to the respondent-employer. The Act came into force w.e.f. September 21, 1972. On the employee’s resignation w.e.f. December 10, 1978 which was accepted by the respondent-employer, he claimed gratuity under Sec.  4(1)(b) of the Act. His claim not having been accepted, he approached the Controlling Authority under Sec.  7 of the Act. The claim was resisted by the employer on the ground firstly that the employee was entitled to gratuity only till the date he reached his superannuation age which was 58 years and since he had not completed 5 years of service by the time he attained 58 years of age, he was not entitled to gratuity under Sec.  4(1) of the Act. Secondly, it was contended that in any case the amount of gratuity payable to the employee was only for the period upto the superannuation age and since he was drawing wages of Rs 230 per month on the day he attained the superannuation age, he was entitled to a sum of Rs 460 only, being the gratuity calculated at the rate of 15 days’ salary per year of service till the date of superannuation. However, both the contentions of the employer were negatived by the Controlling Authority by pointing out that Sec.  4(1) provided for payment of gratuity to the employee on the termination of his employment after he has rendered continuous service of not less than 5 years on the occurrence of any of the three events (supra). The first two events are independent of each other. Since in the present case the employer had not chosen to superannuate the employee on his attaining 58 years of age and had continued him in service till the employee himself resigned on December 10, 1978 by which date he had completed more than 10 years of service, the employee was entitled to the gratuity for the period of his entire service upto the date of his resignation. The Controlling Authority, therefore, calculated the amount of gratuity due to the employee as Rs. 1782 only @ 15 days’ wages per year of service for all the 10 years taking the last drawn wages of Rs 335 p.m. as the basis of calculation. This order was challenged by the employer before the Appellate Authority under the Act, who confirmed the finding of the Controlling Authority and dismissed the appeal.

In the writ petition, the High Court confirmed the interpretation placed on Sec.  4(1) of the Act by the Controlling as well as the Appellate Authority and also held that the age of superannuation is irrelevant when the gratuity is payable under clause (b) of Sec.  4(1) on retirement or resignation, the said clause being independent of clause (a) of that section which provided for payment of gratuity on attaining the age of superannuation. However, the court held that the provisions of Sec.  4(1)(b) of the Act which entitles an employee to gratuity on his retirement or resignation after a continuous service of only 5 years casts an unreasonable restriction on the employer to carry on his business and, therefore, violative of Article 19(1)(g) of the Constitution. We should have thought that on the facts of the present case the court was not called upon to decide the alleged unreasonableness of the qualifying period of 5 years of service for entitlement to gratuity on retirement or resignation, since as pointed out above the employee had put in more than 10 years of service.

TEACHERS AND GRATUITY:

  Whether a teacher is considered an ‘employee’ under Sec. 2 (i) of the Minimum Wages, 1948; whether he shall be covered as a ‘workman’ under Sec. 2(s) of the Industrial Disputes Act, 1947, whether he shall be considered as an ‘employee’ under Sec.  2(e) of the Payment of Gratuity Act- these questions have intrigued the Courts for long, and the opinions of the intellectuals are largely divided.

In Ahmadabad Pvt. Primary Teachers Vs. Administrative Officer, (2004) 1 LLJ 596: 2004 LLR 97 (SC) the Supreme Court held that (i) a teacher, though engaged in very noble profession of educating the young generation but neither performing any skilled, semi-skilled or unskilled, manual or supervisory, technical work, will not be an ’employee’ under Sec.  2(e) of the Payment of Gratuity Act, thus not entitled to gratuity under the Act.  (ii) Even though the Government by its notification dated 3rd April, 1997, has extended the Payment of Gratuity Act upon the educational institutions also but the teachers being not ’employees’ under the Act will not be eligible for gratuity. (iii) The provisions for payment of gratuity as already existing in several States, separate statutes rules and regulations will not be affected by the said judgment disentitling the teachers from entitlement of gratuity.  

Hence, consequent upon the above decision, the Parliament amended the definition of the word ‘employee’ as defined in Sec.  2(e) of the Payment of Gratuity Act, 1972 by Payment of Gratuity (Amendment) Act, 2009 (Act No. 47 of 2009) vide Gazette Notification Dtd. 31.12.2009 with retrospective effect from 03.04.1997 in order to extend the benefit of gratuity to the clan of teaching faculty and to negate the aforesaid Order.

Recently the matter of payment of gratuity to teachers again came up before the Supreme Court in Birla Institute of Technology Vs. The State Of Jharkhand (Civil Appeal No.2530 Of 2012). The  Division Bench on 07.01.2019 unaware of the Amending Act first relied upon its earlier decision in Ahmadabad Pvt. Primary Teachers Association to observe that teachers are not covered under the PG Act. However, again on 7^th  March, 2019, the Apex Court reversed its decision Dtd. 07.01.2019, dismissed the appeal of the employer imposing costs quantified at Rs.25,000/− only. The Court further observed that pendency of any writ petition challenging the Amending Act by itself does not affect the constitutionality of the Amending Act.

EMPLOYEE/ EMPLOYER’S WINDOW:

Different Forms and Register under the Payment of Gratuity Act, which are essential for  employees/ employers and which they should be aware of,  are given below:

Forms	Description
i. Forms required by Employer/ Employee or Nominee or Legal Heir
Form A	Notice of Opening (to be submitted by employer within 30 days of opening his establishment)
Form B	Notice of Change (to be submitted by employer within 30 days of any change in establishment)
Form C	Notice of Closure (to be submitted by employer within 30 days of closure of establishment)
Form D	Notice for Excluding Husband from Family (to be sent by a female employee)
Form E	Notice of Withdrawal of Notice for Excluding Husband from Family (to be sent by a female employee)
Form F	Nomination (Declaration of nominee by employee to be submitted before employer)
Form G	Fresh Nomination (to be submitted by employee before employer)
Form H	Modification or Nomination (to be submitted by employee before employer)
Form I	Application for Gratuity by Employee (to be submitted by employee before employer within 30 days of entitlement)
Form J	Application for Gratuity by Nominee(to be submitted by nominee of deceased employee before employer)
Form K	Application for Gratuity to be made by Legal Heir (to be submitted by legal heir before employer in case of no nomination by deceased employee)
Form L	Notice for Payment of Gratuity to Employee (to be sent by employer to employee)
Form M	Notice Rejecting Claim for payment of gratuity (to be sent by employer to employee)
Form N	Application for direction (to be made by employee before Controlling Authority)
Form T	Application for Recovery of Gratuity (to be made by employee before Controlling Authority)
Form U	Abstract of the Act and Rules (to be displayed by employer)
ii. Forms in connection with Authorities under the Act
Form O	Notice for Appearance before the Controlling Authority (to be sent by the Controlling Authority)
Form P	Summons (to be sent by the Controlling Authority)
Form Q	Particulars of Application under Section 7 (to be maintained in register form by the Controlling Authority)
Form R	Notice for Payment of Gratuity (to be sent by the Controlling Authority to the employer directing him to pay gratuity )
Form S	Notice for Payment of Gratuity as determined by Appellate Authority (to be sent by the Appellate Authority to the employer directing him to pay gratuity as per the decision in the Appeal)

WAGES/SALARY:

Sec. 2 (s) of the Act defines wages as follows:

“2. Definitions.- ……. (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.”

Thus for the purpose of calculation of gratuity the Wages shall  be Basic+ DA.

METHOD OF CALCULATION OF GRATUITY:

As per Sec. 4 of the PG Act, 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 15 days’ wages based on the rate of wages last drawn by the employee concerned, subject to the maximum of 20 months’ wages as provided by sub-Sec. (3).  The Apex Court have observed that the monthly Basic Salary shall be divided by 26 and multiplied by 15. While computing the completed year of service the period in excess of six months shall be taken as a full year, e.g. 7 years 8 months is taken as 8 years. 

Amount of Gratuity = (Monthly salary / 26) x 15 x No. of  completed years of service or  6 months excess part of thereof. 

Further in the case of an employee, who is employed in a seasonal establishment and who is not so employed throughout the year, the employer shall pay the gratuity @ 7 days’ wages for each season. Hence, for such case the multiplier 15 shall be replaced by 7, all other factors remaining the same.

Explanation: 1. In the case of a monthly rated employee, the 15 days’ wages shall be calculated by dividing the monthly rate of wages last drawn by him by 26 and multiplying the quotient by 15.

2. 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.

In Shri Digvijay Woollen Mills Ltd. etc. Vs.  Mahendra Prataprai  Buch etc. 1981 1 SCR 64 the Supreme Court held the decision of the Division Bench of Gujarat High Court legitimate and reasonable, who observed that, “ The employee is to be paid gratuity for every completed year of service and the only yardstick provided is that the rate of wages last drawn by an employee concerned shall be utilised and on that basis at the rate of fifteen days’ wages for each year of service, the gratuity would be computed. In any factory it is well known that an employee never works and could never be permitted to work for all the 30 days of the month. He gets 52 Sundays in a year as paid holidays and, therefore, the basic wages and dearness allowance are always fixed by taking into consideration this economic reality……..A worker gets full month’s wages not by remaining on duty for all the 30 days within a month but by remaining on work and doing duty for only 26 days. The other extra holidays may make some marginal variation into 26 working days, but all wage boards and wage fixing authorities or Tribunals in the country have always followed this pattern of fixation of wages by this method of 26 working days.”

 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. In Jeewanlal (1929) Ltd. Etc. Vs. Appellate Authority under the Payment of Gratuity Act & Ors. : 1984 AIR 1842, 1985 SCR (1) 664 the Supreme Court observed that, “In  construing a  social welfare  legislation, the Court should  adopt a beneficent rule of construction and if a Section  is capable of two constructions, that construction should be preferred which fulfils the policy of the Act, and is more  beneficial to the persons in whose interest the Act has been passed. When the language is plain and unambiguous, the Court  must give  effect  to  it  whatever may  be  the consequence. The  argument of  inconvenience and hardship is only admissible  in construction  where the  meaning of the statue is obscure and there are two methods of construction. In an  anxiety to  advance the beneficent  purpose  of the legislation, the  Court must  not yield to the temptation of seeking ambiguity when there is none.”  The Court further held that,  “Sub-Secs.(2)  and (3) of Sec. 4 of the  Act are designed to achieve two  separate and  distinct objects and they operate at two different stages.  While sub-sec. (2) provides for the mode of calculation of the amount  of gratuity,  sub-Sec. (3) seeks to  impose a ceiling on the amount of gratuity payable at 20  months’ wages.  It is meant to provide an incentive to employees to  serve for the period of 30 years or more. Sub- Sec.(2) of  Sec.4 of the Act which uses the words “fifteen days’ wages” and  not half a month’s wages, cannot be called in aid for construction  of the  words “20 month’s wages”, appearing in sub- Sec.(3) of Sec. 4 of the Act.”

HIGHER CEILING OF GRATUITY:

The maximum amount of gratuity payable under the Act has been enhance to Rs.20 Lakh only vide the Payment of Gratuity (Amendment) Act, 2018 published vide Govt. of India  Gazette Notification Extra. Pt. II- Sec. I, No. 16 Dtd.  29^th March 2018 (w.e.f. 29.03.2018).    Thus the employer is legally liable to pay a maximum of 20 lakh only as gratuity, and can hence limit the gratuity amount payable to an employee to this higher ceiling if the calculation exceeds Rs. 20 lakh. However, as a management policy to pay any higher amount, an employer might pay more than 20 lakh only. The point to be noted here is that if an employee receives gratuity above Rs. 20 lakh, such excess amount shall be taxable as if salary in the hands of the recipient employee.

PRINCIPAL EMPLOYER’S LIABILITY:

The Madras High Court in M/s. Madras Fertilisers Limited Vs. The Controlling Authority on 1 November, 2002 held that Gratuity is ‘wages’ as defined under Sec. 2 (vi) (d) of the Payment of Wages Act, 1936, which reads asunder:

“2. Definitions.- ………

(vi) ‘wages’ means xxx

(d) any sum which by reason of the termination of employment of the person employed is payable under any law, contract or instrument which provides for the payment of such sum, whether with or without deductions but does not provide for the time within which the payment is to be made;”

xxx.”

  Hence, once this construction is accepted, it is clear that it will be the basic responsibility, under Sec.21(4) of the Contract Labour Act, of the Principal Employer to make the payment of gratuity and he will have a right to recover that sum from the   contractor because, the initial responsibility to make the payment of gratuity lies with the contractor.

   This fact has been reiterated again in Superintending Engineer,  Mettur Thermal Power Station, Mettur Vs. Appellate Authority, Joint Commissioner of Labour, Coimbatore & Anr., 2012 LLR 1160.

Therefore, all principal employers engaging contract labour through contractors/ manpower suppliers/agencies must not only focus on ensuring compliance towards routine payment of wages and other statutory benefits (like EPF, ESI/ Insurance, Bonus, etc.), but also put their heart to terminal payments (gratuity, retrenchment compensation, etc.).

DETERMINATION OF GRATUITY:

The person entitled to receive the gratuity amount shall send an application in writing to the employer. The employer shall calculate the gratuity amount and provide notice in writing to the concerned employee and the controlling authority. The payment should be made within 30 days from the date payable to the employee. Failure of payment within the prescribed limit will result in payment of simple interests. However, if the delayed payment is because of the employee then the employer is not entitled to pay the simple interests.

The disputes arising between the employee and employer shall be referred to the controlling authority and proceeding for the resolution presided by the controlling authority shall be considered to be judicial proceeding. The controlling authority has the authority to enforce the presence of any person and examine his oath, production of relevant documents and issuing commissions for the examination of witnesses if required. After due inquiry and giving the parties a reasonable opportunity of being heard, the controlling authority may determine the matters and pass appropriate orders. The aggrieved party can apply for appeals to the government. 

NOMINATION IN CASE OF DEATH: 

According to the Payment of Gratuity Act, it is necessary for the employee to prescribe for the name/names of the nominee soon after completing one year of service. In case of a family, the nominee should be one among the family members of the employee and other nominees shall be void. Any alteration or fresh nomination must be conveyed by the employee to the employer who shall keep the same in his safe custody.

INTEREST ACCRUED ON DELAYED PAYMENT:

Sub-Sec. (3A) of Sec. 7 reads asunder:

“7. Determination of the amount of gratuity –

xxx

xxx

(3A) If the amount of gratuity payable under sub-Sec.  (3) is not paid by the employer within the period specified in sub-Sec.  (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.”

The rate of interest on delayed payment of gratuity has been fixed at 10% Simple Interest vide Notification No. SO 874(E), Dated 1^st October, 1987 published in Gazette of India, extraordinary, dated 1-10-1987, part II, Sec.  3(ii), P-2.

In State of Kerala & Ors. Vs. M.Padmanabhan Nayyar (1985 AIR 356:  1985 SCR (2) 476: 1985 (50) FLR 145) it was held that, “Specific benefits expressly given in a social beneficial legislation cannot be ordinarily denied. Employees on retirement have valuable rights to get gratuity and any culpable delay in payment of gratuity must be visited with the penalty of payment of interest was the view taken.”  

In the case of Charan Singh Vs. M/s. Birla Textiles and Another (1988 AIR 2022: 1988 SCR Supl. (2): 742 1988 (57) FLR 543 SC), this aspect was noticed in the following words: “There was no provision in the Act for payment of interest when the same was quantified by the Controlling Authority and before the Collector was approached for its realization. In fact, it is on the acceptance of the position that there was a lacuna in the law that Act 22 of 1987 brought about the incorporation of sub-Sec.  3(A) in Sec.  7. That provision has prospective application.:”

In the landmark case of Y.K. Singla Vs. Punjab National Bank,  the Supreme Court had to decide whether an employee whose gratuity has been withheld under Regulation 46 of the Punjab National Bank (Employees) Pension Regulations is entitled to get interests because of the delay after the completion of the proceeding. The court held that even though the provisions of the 1995 Regulations  are silent on the issue of payment of interest, the appellant would be entitled to interest  on account of delayed payment under the Payment of Gratuity Act.

In H. Gangahanume Gowda Vs. Karnataka Agro Industries Corpn. Ltd. [2003] RD-SC 50 (5 February 2003) ,  while in service, the appellant and few other officials were kept under suspension in March, 1999. Aggrieved by the same, the appellant and others filed writ petition Nos. 11893-11898 of 1999 inter alia contending that order of suspension passed was one without authority of law and without application of mind. After service of notice in the writ petitions, the respondent-Corporation realizing that it was not possible to support the said order of suspension, withdrew the same by an order dated 21.5.1999. Taking note of the order dated 21.5.1999 revoking the suspension, the High Court disposed of the writ petitions as having become infructuous, however, reserving liberty to the writ petitioner to approach the High Court for seeking appropriate relief, if necessary. The appellant reached the age of superannuation on 1.1.2000 and retired. The respondent-Corporation did not pass any order regarding regularization of the suspension period and settlement of salary and allowances payable to him on retirement. In this situation, the appellant was constrained to approach the High Court again in Writ Petition No. 26980 of 2000 seeking payment of full salary and allowances for the period of suspension, gratuity, cash equivalent of earned leave together with interest thereon @ 18% per annum and settlement of provident fund dues.

The  Single Judge, after considering the rival contentions, disposed of the writ petition issuing directions to the respondent- Corporation to settle the full salary and allowances for the period of suspension, gratuity, cash equivalent to leave salary, deferred leave, concession amount etc. As regards the claim of interest on gratuity, the learned Single Judge held as under:-

“Since there was a doubt as to whether the petitioner is entitled to the gratuity, cash equivalent of leave salary etc., in view of the divergent opinion of the Courts during the pendency of an enquiry proceeding of a retired employee, in my view, the petitioner is not entitled to the relief of interest for the belated payment of gratuity and other amounts.”

The Division Bench of the High Court, having found that the appellant was entitled for interest, declined to interfere with the order of the learned Single Judge as regards the claim of interest on delayed payment of gratuity only on the ground that the discretion exercised by the learned Single Judge could not be said to be arbitrary.

The Hon’ble Supreme Court in Appeal held that it was not the case of the respondent that the delay in the payment of gratuity was due to the fault of the employee and that it had obtained permission in writing from the controlling authority for the delayed payment on that ground. As noticed above, there is a clear mandate in the provisions of Sec.  7 to the employer for payment of gratuity within time and to pay interest on the delayed payment of gratuity. There is also provision to recover the amount of gratuity with compound interest in case amount of gratuity payable was not paid by the employer in terms of Sec.  8 of the Act. Since the employer did not satisfy the mandatory requirements of the proviso to Sec.  7(3A), no discretion was left to deny the interest to the appellant on belated payment of gratuity. The Apex Court while setting aside both the orders of the High Court, directed the respondent to pay interest @ 10% on the amount of gratuity to which the appellant is entitled from the date it became payable till the date of payment of the gratuity amount with cost quantified at Rs. 10,000/- only.

INSPECTOR AND AUTHORITIES:

The appropriate governments (both the Central Govt. and respective State/ Union Territory Governments within  their respective jurisdictions) appoint inspectors under Sec. 7 A of the Act,  who derive their powers from Sec. 7B of the PG Act, and are deemed to be a public servant under Sec.  21 of Indian Penal Code, 1860 for the purpose of ascertaining whether any of the provisions of this Act are being violated or not complied with and take necessary measures to ensure the implementation of the provisions of this Act.

The Controlling Authority are appointed by the appropriate government in exercise of powers under Sec. 3 for the proper administration of this Act. Different controlling authority are appointed for different areas also. 

Any person aggrieved by an order under Sec.  7 (4) of the Controlling Authority may, within 60 days from the date of the receipt of the order, prefer an appeal to the appropriate Government or Appellate Authority as specified by the appropriate Government. If the appellate authority/ appropriate Govt. is satisfied that the appellant was prevented by sufficient cause from preferring the appeal within the said period of 60 days, extend the said period by a further period of 60 days. Thus there can be no appeal before the Appellate Authority beyond 120 days.

The Inspector and the  authorities are protected under good faith. No legal proceeding shall lie if any act is done by them is in good faith or under any rule or any order.

RECOVERY OF GRATUITY:

If the employer delays in the payment of gratuity amount under the prescribed time limit, then the controlling authority shall issue the certificate to the District Collector on behalf of the aggrieved party and recover the amount including the compound interest decided by the central government and pay the same to the person. However, these provisions are under two conditions:

1. The controlling authority should give the employer a reasonable opportunity to show the cause of such an Act.
2. The amount of interest to be paid should not exceed the amount of gratuity under this Act.

OFFENCE AND PENALTY:

Violation of the provisions of the Act entail  penalties of both fine and imprisonment. They are:

1. For avoiding any payment, if someone makes a false representation or false statement shall be punishable with imprisonment for 6 months or fine up to Rs. 10,000 or both.
2. Failure to comply with the provisions of this Act shall be punishable for a minimum of 3 months which may extend upto 1 year or a fine of Rs. 10,000 which may extend upto 20,000 only.
3. Non-payment of gratuity under the Act will lead to offence and the employer shall be punishable with imprisonment for at least 6 months and which may extend upto 2 years unless the court provides for the sufficient reason for less payment.

However, an employer if charged with any offence punishable under this Act, shall be exempted from any liability, if he provides sufficient reasons for his conduct of the act or some other person doing that act without his knowledge. The other person if found guilty will be charged with the same punishment as an employer shall be charged.

COGNISANCE OF OFFENCE:

The court cannot take cognisance under Sec. 11 of the offences punishable under this Act unless the amount of gratuity to be paid has not been paid or recovered within 6 months from the expiry of the prescribed time. In such cases, the government shall authorise the controlling authority to make a complaint where the authority has to make a complaint to the metropolitan magistrate or judicial magistrate of first class within 15 days of the authorisation. 

POWER TO EXEMPT, BUT WITH A CATCH:

The Act provides the power to exempt to the appropriate government by notification to declare any establishment, factory, mine, oilfield, plantation, port, railway company or shop exempted from gratuity if the government is of the opinion that the establishment has favourable benefits not less than what this Act has been providing. The same law applies to any employee or class of employees. 

PROVISIONS UNDER CODE OF SOCIAL SECURITY, 2020:

In Jeewanlal (1929) Ltd. Case, the Apex Court observed that, “Whenever  doubt or  difficulty is  expressed by the High Courts  in the  application  of  provisions  of  social security  measures,   namely,  retiral benefits, gratuity, provident fund etc., the  Government must  always introduce legislation to cure the  defect rather than wait  judicial interpretation by the highest Court. xxx. The  Government may  consider  the  desirability  of setting  up  a National  Labour  Commission  which  may  be entrusted not only with the task of making periodical review of social welfare legislations from time to time but also to suggest radical  reform of  the laws  relating to industrial relations which must be  brought in  tune with the changing needs of the society.”

In 2002, the Second National Commission on Labour  (NCL) found existing legislation to be complex, with archaic provisions and inconsistent definitions.  To improve ease of compliance and ensure uniformity in labour laws, the NCL recommended the consolidation of central labour laws into broader groups such as

(i) industrial relations,

(ii) wages,

(iii) social security,

(iv) safety, and

(v) welfare and working conditions. 

The  Code on Social Security, 2020 (‘SS Code’ in short) has been framed to amend and consolidate the laws relating to social security with the goal to extend social security to all employees and workers either in the organised or unorganised or any other sectors. The SS Code has vital provisions with respect to social security benefits to workers including gig workers.

The Code on Social Security, 2020 intends to amalgamate, simplify and rationalise the relevant provisions of the following nine central labour enactments relating to social security, namely:––

1. The Employee’s Compensation Act, 1923;
2. The Employees’ State Insurance Act, 1948;
3. The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952;
4. The Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959;
5. The Maternity Benefit Act, 1961;
6. The Payment of Gratuity Act, 1972;
7. The Cine Workers Welfare Fund Act, 1981;
8. The Building and Other Construction Workers Welfare Cess Act, 1996; and
9. The Unorganised Workers’ Social Security Act, 2008.

‘Gratuity’ finds place in Chapter V (Secs. 53 to 58) of the  SS Code, 2020. Some notable changes ushered in by the SS Code, 2020 are:

• In Sec. 53. scope of payment of gratuity has been widened by adding termination of the contract period under fixed term employment  or  on happening of any such event as may be notified by the Central   Government.  Gratuity under the SS Code is payable to employees hired directly or through a contractor. Gratuity shall be payable to eligible employees by every shop or establishment in which 10  or more employees are employed, or were employed, on any day of the preceding 12 months.
• Different yardsticks in eligibility thresholds  with respect to permanent, fixed term employees and working journalists have been fixed. While the eligibility in case of a permanent or a contract labourer is 5 years’ continuous service, for a working journalist it is 3 years’ and in case of a fixed term employee only 1 year’s. Previously Gratuity was not payable to working journalists when they resigned after 3 years since the same had been declared ultra vires in Express Newspapers (P) Ltd. Vs. Union of India (supra). The same has been cured.
• As per Sec. 57 of the SS Code, with effect from such date as may be notified by the appropriate Government in this behalf, every employer has to take compulsory ratuity insurance from any insurance company regulated by the Authority as defined under clause (b) of sub-Sec.  (1) of Sec.  2 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999).
• Employer employing 500 or more  persons are required to establish an approved Gratuity Fund with Board of Trustees approved by appropriate Govt.
• By virtue of Sec. 58 of the Code the ‘Controlling Authority’ is re-nomenclatured as ‘Competent authority’.
• The maximum amount of gratuity payable to an employee shall not exceed such amount as may be notified by the Central Government. This ceiling may be revised from to time.
• If any person fails to pay any amount of gratuity to which an employee is entitled to, he shall be punishable with imprisonment for a term which may extend to 1 year or with fine which may extend to Rs. 50,000  only, or with both.
• There was much debate and demand to reduce the entitlement to one year across all categories. The SS Code, however reduces only the gratuity entitlement for fixed term employee to one year and for working journalists to three years.

FORFEITURE OF GRATUITY:

Gratuity of an employee can be forfeited as per Sub-Sec. (6)  of  Sec. 4 of the Payment of Gratuity Act.  

Sec. 4 (6) of the Act reads as follows: 

“4. Forfeiture of Gratuity.-

xxx

(6) Notwithstanding anything contained in sub-Sec.  (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; 

b) the gratuity payable to an employee may be wholly or partially forfeited. 

i. 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 

ii. 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.”

In most of the cases, it is complained that employers deduct/withhold or even forfeit the gratuity amount payable to an employee on his retirement, resignation or termination of services on the plea that the employee has not repaid the loan/Advances taken by him or the house/quarters allotted for residence has not been vacated or he has caused damages, loses or destruction of property belonging to employer or on the ground that his conduct was not good. 

  Some points to be remembered while forfeiting gratuity are:

• Sec.  13 of the Act gives protection  to the gratuity amount payable under the Act. Accordingly no gratuity payable to an employee under this Act can be attached in execution of any decree or order of any civil or criminal court. No deduction for loan or advances taken by the employee (other than from gratuity), can be made from the gratuity amount.  Gratuity can also not be withheld for non-vacation of house/quarters possessed by the employee.
• Forfeiture of gratuity either wholly or partially is permissible under Sec.  4(6)(b)(ii) only in the event when the termination is on account of riotous / disorderly conduct or any other act of violence or on account of an act constituting an offence involving moral turpitude wherein he is convicted. When there is no reference of forfeiture of gratuity in the order of dismissal of the employee, amount of loss caused by the employee to the employer, cannot be adjusted from the amount of gratuity, payable to the employee. 
• If an employee has been terminated from his services on account of causing loss to the forfeiture of gratuity to the extent of loss caused to the employer is justified in view of provisions of Sec.  4(6) of the Payment of Gratuity Act, 1972.
• Sec. 60(1)(g) of the Civil Procedure Code also provides that gratuity payable to an employee cannot be attached and the Civil Court cannot grant injunction restraining the employer from payment of gratuity to an employee. 
• The gratuity payable to legal heirs of the deceased employee attachable in a decree under Civil Procedure Code. 
• If an organisation adopting the way of having agreement from unions or workers in respect of adjustment of loan against gratuity but such agreements or undertakings or declarations have no legal sanctity if challenged in court of law. This system works till it is not challenged but that does not mean that this kind of arrangement is legal. 

What is Moral Turpitude: “Moral turpitude” is anything done contrary to justice, honesty, modesty or good morals. In re William 167 p. 1149, 1152, 64 CKL 316.( Words and Phrases, Permanent Edition, Vol. 27A, p. 186).

“Moral turpitude” includes all acts done contrary to justice, honesty, modesty or good morals. Neibling Vs. Terry, 117 S.W. 2d 502, 503, 352 Mo. 396, 152. A.L.R. 249.”

The expression ‘Moral Turpitude’ means anything done contrary to justice, honesty, principle or good morals, an act of baseness, vileness or depravity in the private and social duties which a man owes to his fellowmen, or to his society in general contrary to the accepted and customary rule of right and duty between man and man. The test which should ordinarily be applied for judging whether a certain offence does or does not involve moral turpitude are :

• whether the act was such as could shock the moral conscience of society in general,
•  whether there was intention or base motive in doing the act. 

The words ‘riotous or disorderly’ must be read to mean that such acts must be tinged with violence, which causes a major disruption of the work in the establishment/factory, which could result in penalty of forfeiture of gratuity.

Sexual harassment of a female employee or questionable acts of personal morals are covered under the term ‘moral turpitude’. However, using of abusive language by an employee cannot be construed as moral turpitude for forfeiting the gratuity.  

Case Laws on Forfeiture of Gratuity: Since withholding/ forfeiture of gratuity is a tightrope walk and involves much litigations, some common laws are illustrated below for guidance.

• Gratuity of an employee cannot be withheld by an employer.  Lt. Col. A. Vs. Tiwari (Retd.) Vs. The Secretary Ministry of Welfare, Government of India, 1996 LLR 1092 (AU.).
• Gratuity of an employee can be withheld only in case of his dismissal and not otherwise. Forfeiture of gratuity of a terminated employee can be done only to the extent of damages or losses.  K.C. Mathew Vs. Plantation Corporation of Kerala, Ltd., 2000 LIC 1519: 2000 LLR 1280 (Ker.).
• Gratuity, as payable to an employee, can be forfeited only when he is dismissed from service for wilful omission and riotous and disorderly behaviour involving moral turpitude etc. as stipulated under Sec.  4(6) of the Payment of Gratuity Act, hence, withholding of gratuity by the employer of an employee retired from service will not be justified.  Texmaco Ltd. Vs. Shri Ram Dhan, (1993) 1 LLN 129: (1992) 2 CLR 256: (1993) III LLJ (Supp) 20B: 1992 LLR 369: 1992(65) FLR 742 (Del.).
• Withholding of gratuity of an employee compulsorily retired from service will not be justified. Brundaban Sahu Vs. O.S.R.T. Corporation Ltd., (1993) 1 LLN 129: (1992) 2 CLR 256: (1993) III LLJ (Supp) 208: 1992 LLR 696 (Ori.).
• Gratuity of an employee cannot be withheld even if disciplinary proceeding is pending against him.  Gopalkrishna Vs. Karnataka Soaps & Detergents Ltd., 1996 LLR 306 (Ker.).
• Gratuity of an employee cannot be withheld even if he fails to surrender employer’s land. Travancore Plywood Ind. Ltd. Vs. Regional Joint Labour Commissioner, (1996) II LLJ 85: 1996 LLR 397 (Ker.).
• Gratuity of an employee dismissed for wilful slowing down of work cannot be withheld since there is no such bar in the Act.  Permoli Wallace Ltd. Bhopal Vs. State of Madhya Pradesh, (1996) 88 FJR 652: (1996) II LLJ 515: 1996 LLR 414 (M.P.).
• Compensation of Rs. 50,000 will be payable for withholding gratuity for three years . Mohammad Zaheeruddin Siddiqui Vs. Executive Council, AM.U., 2000 LLR 458 (SC).
• Forfeiture of gratuity is permissible if an employee is dismissed for misappropriation. Bank of India Vs. Kamlakar Vishwambhar Joshi, 2001 LIC 3770: (2001) 3 CLR 32: 2001 LLR 1229 (Bom.).
• No deductions can be made from gratuity except shortage or assessed misappropriation. P.D. Chiyanna Vs. Kamataka Agro Industries Corporation Ltd. Bangalore, 2001LIC 19: (2001) 85 FLR 814: 2001 (III) CLR 846: 2001 LLR 250 (Karn.).
• (i) Loss of property has to be ascertained, (ii) Disorderly conduct must be supported by evidence of activities starting from misbehaviour to creating damage to machinery, furniture etc. while forfeiting the gratuity of an employee.  Gopalswamy (since dead) by LRs Vs. Management of Usha Martin Industries, 2001 (II) LLJ 1060 (Karn.).
• Gratuity of an employee will not be forfeited on subsistence allowance.   PD. Chiyanna Vs. Kamataka Agro Industries Corporation Ltd., (2001) LIC 19: (2001) 85 FLR 814: 2001 LLR 250 (Karn.).
• Deduction of gratuity with employee’s consent cannot be challenged. Kuttan Pillai Vs. State of Kerala, (2001) II CLR 900: (2001) 3 LLN 618: (2002) 92 FLR 387: 2001 LLR 1145 (Ker.).
• A notice must be issued to the employee before forfeiting his gratuity. J.P. Micheal D’Souza Vs. Appellate Authority under Payment of Gratuity Act, Bangalore, 2002 LLR 7 (Karn.).
• Mere pendency of criminal case shall not disentitle an employee from receiving Gratuity. Rajendra Kumar Nangia Vs. Rashtriya Chemicals & Fertilizers Ltd., (2002) 1 LLJ 648: 2002 LLR 266 (Bom.).
• In the absence of specific order against an employee, his gratuity cannot be forfeited. Ahemadabad Municipal Corporation Vs. Elivina Samuelbhai Christian, (2002) 1 LLJ 342: 2002 LLR 269 (Guj.). Radheshyam Khichrolia Vs. Madhya Pradesh Co-operative Marketing Federation Ltd., 2002 LLR 610 (M.P.).
• Gratuity of an employee cannot be withheld for non- vacation of staff quarters.  Beer Bala Gupta Vs. 15- Additional Sessions judge, Meerut, 2002 LLR 619 (All.). Dhanwant Rai Vs. Delhi Transport Corporation, 2005 LLR (SN) 302 (Del.).
• Gratuity being a statutory right payable as a retiral benefit after serving of an employer for a long period cannot be taken away by an agreement between the parties which cannot be reduced but could be enhanced.  Y.R. Shenoy Vs. Syndicate Bank, (2003) II LLJ 977: 2003 LLR 615: 2003 (97) FLR 812 (Karn.).
• Gratuity, as payable by an employer to an employee, cannot be either withheld or adjusted against the amount of rent due to an employer for unauthorized retention of accommodation of the employer by an employee.  Bhailal Kalida, Barot Vs. Factory Manager, Jehangir Textile Mills Ltd., (2003) 1 GLR 629: (2003) II LLJ 355: 2003 LLR 616: 2003-II LLN 283 (Guj.).
• For forfeiture of gratuity, a separate order is not required when the dismissal of the workman has been due to riotous and disorderly behaviour e.g. in stopping another workman at the entrance with a dagger and stabbing those who tried to intervene.  Indian Aluminium Company Ltd. Vs. Regional Labour Commissioner (Central), Dhanbad, 2003 LLR 692: 2003-II LLJ 818 (Jhar.).
• Gratuity, being valuable right, is not bounty and cannot be countenanced for non-vacation of the quarters by an employee. M.A. Shrirahatti Vs. N.G.E.F. Ltd., Bangalore, 2003 LIC 1352: 2003 LLR 772: 2003-II LLJ 1004 (Karn.).
• The adjustment of penal rent for unauthorized occupation of the quarters cannot be made from the gratuity, as payable. M.A. Shrirahatti Vs. N.G.E.F. Ltd., Bangalore, 2003 LIC 1352: 2003 LLR 772: 2003- II LLJ 1004 (Karn .).
• Gratuity payable to an employee on his retirement cannot be set off by the employer for the damages pertaining to unauthorized occupation of employer’s accommodation by the employee since the employer can pursue appropriate remedy as available in law. V.U. Warrier Vs. Secretary, Oil and Natural Gas Commission, Dehradun, (2003) 98 FLR 640: (2003) 2 CLR 99: (2003) 3 Mah LJ 168: 2003 LLR 956: 2003-11 LLJ 918 (Bom.).              
• An employer cannot withhold or adjust the gratuity of an employee on the plea that he is unauthorisedly occupying company accommodation and has not paid the market rent. Gujarat State Road Transport Corporation Vs. Kiritkumar Ponjala Barol, 2003 LLR 1069: 2003- III LLN 1047 (Guj.).
• Effecting deduction of Rs. 8700 from the gratuity of a retired employee for finalisation of TA bills will not be justified as held by the Appellate Authority under the Payment of Gratuity Act hence the High Court will not interfere in the writ petition filed by the employer. National Seeds Corporation Ltd. Vs. H.L. Mehta, (2004) 1 LLJ 656: 2004 LLR 163 (Del.).
• Gratuity as payable to an employee can be forfeited when his service has been terminated only on the eventualities as enumerated in sub-Sec.  (6) of Sec.  4 of the Payment of Gratuity Act. Gujarat State Road Transport Corporation Vs. Devendrabhai Mulvantrai Vaidya, 2004 LLR 225: 2004-1 LLJ 77 (Guj.).            
• An employer has no right to withhold gratuity of an employee payable on his retirement on the pretext that he has not been vacating the land of the employer and as such the High Court directed to release the gratuity of the employee forthwith alongwith interest. Bharat Heavy Electricals Ltd.,  Haridwar Vs. Controlling Authority under Payment of Gratuity Act, Meerut, (2004) “ LLj 400: 2004 LLR 232: 2004 (100) FLR 653 (Uttr.).
• Forfeiture of gratuity of an employee for misbehaviour will not be justified.  Hindalco Industries Ltd. Vs. Appellate Authority, under the Payment of Gratuity Act, Kanpur, (2004) 101 FLR 1063: (2004) 3 LLN 106: (2004) I LLJ 348: 2004 LLR 690 (All.). .
• For forfeiture of gratuity, the employer must satisfy the Controlling Authority with justifiable reasons. Hindalco Industries Ltd. Vs. Appellate Authority, under the Payment of Gratuity Act, Kanpur, (2004) III LLJ 148: (2004) 101 FLR 1063: 2004 LLR 690 (All.).
• Forfeiture of gratuity by the employer will not be tenable when there is no finding about loss or damage to property. Eastern Coalfields Ltd. Vs. Kripa Sankor Somany, (2004) 1 CHN 662: (2004) III LLJ  672: 2004 LLR 1112 (Cal.).
• Forfeiture of gratuity of a suspended Bank employee, on his retirement, will not be justified in the absence of termination for misconducts. Valsad District Central Cooperative Bank Ltd. Vs. Krushnalal Milnilal Vashi, 2005 LLR 58 (Guj.).
• Use of abusive language by an employee cannot be construed as ‘moral turpitude’ for forfeiting the gratuity. Management of Central Theatre, Coimbatore Vs. (1) Controlling Authority, Payment of Gratuity Act, Office of the Commissioner of Labour, Coimbatore (2) D. Amirtha Murugan, 2005 LLR 149 (Mad.).
• Forfeiture of gratuity for moral turpitude as alleged against an employee will not be tenable since no opportunity” was given to him by the employer. Management of Central Theatre, Coimbatore Vs. (1) Controlling Authority, Payment of Gratuity Act, Office of the Commissioner of Labour, Coimbatore (2) D, Amirtha Murugan, 2005 LLR 149 (Mad.).
• No deduction, whatsoever, except as stipulated by Sec.  4(6) pertaining to forfeiture of gratuity on account of dismissal of an employee because of certain misconduct, can be made from the payment of gratuity as payable to an employee. Food Corporation of India Vs. Appellate Authority under Payment of Gratuity Act, Kanpur, 2005 LLR 713: 2005 (105) FLR 914 (All.).
• Gratuity of an employee cannot be withheld merely on assessment of loss to the bank in the absence of an order for forfeiture. Baroda Traders Coop, Bank Ltd. Vs. Mahendrabhai B, Shah, 2006 LLR 390 (Guj.).
• Forfeiture of gratuity order, passed after retirement, would not be justified. Uttar Pradesh State Road Transport Corporation v, Shivaji, 2007 LLR (SN) 221 (SC).
• Gratuity of an employee, even after his retirement, is rightly forfeited when he has caused heavy financial loss to the PSU. Mashkoor Ahmad Vs. Union of India, 2007 LLR (SN) 318 (Del.).
• Non-payment of gratuity by an employer to an employee for non-payment of rent dues by the latter will not be justified. Motilal Sharma v, University of Rajasthan, 1998 II LLJ 1021 (Raj.).
• Gratuity of an employee cannot be withheld for occupying residential quarters. H. Rajendra Pal Vs. Canara Bank, (1998) 78 FLR 650, 1998 LLR 419 (Ker.). Mohammad Shabbir Nadvi Vs. Jamia Milia Islamia, (1996) III LLJ (Supp) 853: 1995 LLR 5 (Del.).
• Non-payment of gratuity to an employee in failing to vacate staff quarters will not be justified. Air India Ltd. Vs. Appellate Authority under the Payment of Gratuity Act, 1972 –cum-Regional Labour Commissioner (Central) Bombay, (1999) 1 Mah LJ 740: (1999) 1 CLR 291: (1999) 1 Born CR 426: (1999) II LLj 93: 1999 LLR 260 (Bom.) : 1999 (81) FLR 900. Swadeshi Cotton Mills Vs. Assistant Labour Commissioner (Central) & Controlling Authority under Payment of Gratuity Act, Allahabad; (2000) 2 LLN 1140: 2000 LLR 366 (All.).
• Deduction from gratuity can be made for electricity charges and house rent when Service Rules so provide. Sardar Sohan Singh Vs. Union of India, 2007 LLR 763 (Cal.).
• For forfeiture of gratuity, there has to be positive dismissal for misconduct. Abdul Rowther Vs. Appellate Authority under Payment of Gratuity, Madurai, 2007LLR 1250 (Mad.),
• Gratuity of an employee can be forfeited only under prescribed conditions.. State Farms Corporation of India Ltd, Vs. PD. Mathai, 2008 LLR 458 (Ker.),
• Forfeiture of gratuity causing loss to employer due to the negligence, cannot be faulted with. Devinder Singh Vs. Food Corporation of India, 2008 LLR 934 (P&H.).
• Forfeiture of gratuity not to be interfered because no criminal proceedings were initiated against the workman by the employer for misappropriation. The Manager Vs. Mr. Prayag Modi on 6 February, 2018 (MP): Bank Of India Vs. R.V. Deshmukh on 18 September, 2014 (Bom.)
• Forfeiture of gratuity of an employee for misappropriation can be to the extent of amount as misappropriated.  (Bharath God Mines Ltd., Kolar vs. Regional Labour Commissioner (Central) Bangalore & Ors 1987 – 1 LLN 308)   
• Forfeiture of gratuity either wholly or partially is permissible under Sec.  4(6)(b)(ii) only in the event that the termination is on account of riotous or disorderly conduct or any other act of violence or on account of an act constituting an offence involving moral turpitude wherein he is convicted. (Jaswant Singh Gill Vs. Bharat Coking Coal Limited and others; (2007) 1 SCC 663)  
• If the services of an employee are terminated on the charges of committing theft during the period of employment then the gratuity payable to him can be forfeited. But before such direction of forfeiture, an opportunity of hearing must be given.  M/s. Bharath Gold Mines Ltd. Vs. The Regional Labour Commissioner (Central), Bangalore and others [1986 Lab. I.C. 1976]

However, having said all this and quoting different Case Laws on the above subject, I must add the following quote, which aptly describes the duty of an employer: “Know how and how much to tip people who expect gratuities, even in the case of poor service.”- (Marilyn vos Savant)

OVERRIDING EFFECT OVER OTHER ENACTMENTS:

Since the Payment of Gratuity Act is complete in itself, therefore, as per Sec. 14 of the Act has an overriding effect on all provisions, regulations and statutes relating to gratuity. The landmark case for this provision is University of Delhi Vs. Ram Prakash And Ors., which states that any provision which is more beneficial for the employees should be considered to be having overriding effect.

However, Rules cannot be formed in repugnancy to the Payment of Gratuity Act, and in such a case the Act will have an overriding effect in accordance with Sec. 14 .  In Indian Red Cross Society Vs. Bankanidhi Mishra on 15 March, 2013 the Hon’ble Orissa High Court have observed that Indian Red Cross Society, Orissa Branch comes within the meaning of ‘establishment’ and the provisions of the Act, 1972 is applicable to it,  and further statutory entitlement available to an employee cannot be curtailed by employer by framing any Rules of its own.

PROVISION OF GRATUITY IN SHOPS & ESTABLISHMENTS ENGAGING LESS THAN 10 EMPLOYEES:

The Shops & Commercial Establishments Act of most States prescribe gratuity to employees having 10 years’ continuous service in case of resignation/retirement/ superannuation. It must be remembered that when the number of employees in a shop or commercial establishment is less than 10 the provisions of Shops & Commercial Establishments Act of the corresponding State shall be applicable, and when the number of employees is more than 10, the Payment of Gratuity Act, 1972 shall be applicable.

CAN THE EMPLOYER HAVE A MORE BENEVOLENT GRATUITY SCHEME:

While there is uniformity in the applicability of the Payment of Gratuity Act, an employer can float a more benevolent scheme. In such a more benevolent Gratuity Scheme region-cum-industry principle is applicable, and parity cannot be claimed. In Delhi Cloth and General Mills Co. Ltd. Vs. Workmen (1970 AIR 919, 1969 SCR (2) 307),  the Industrial Tribunal framed two schemes relating to the payment of gratuity. One related to the DCM and SBM which were under the same management and the other relating to BCM and ATM which were under different managements. The Apex Court pointed out asunder:

“Gratuity is not in its present day concept merely a gift made by the employer in his own discretion. The workmen have in course of time acquired a right to gratuity on determination of employment provided the employer can afford having regard to his financial condition, to pay it. There is undoubtedly no statutory direction for payment of gratuity as it is in respect of provident fund and retrenchment compensation.”

However, with the enactment of the 1972 Act the statutory provision now supplants the above observation of the Apex Court.

The conditions for the grant of gratuity, as observed in Bharatkhand Textile Mfg. Co. Ltd. Vs. The Textile Labour Union (1960 AIR 833, 1960 SCR (3) 329)  are :

1. financial capacity of the employer;
2. his profit making capacity;
3. the profits earned by him in the past;
4. the extent of his reserves;
5. the chances of his replenishing them; and
6. the claim for capital invested by him.

But these are not exhaustive and there may be other material considerations which may have to be borne in mind in determining the terms and conditions of the gratuity scheme. Existence of other retiring benefits such as provident fund and retrenchment compensation or other benefits do not destroy the claim to gratuity: its quantum may however have to be adjusted in the light of the other benefits.

CONCLUSION:

For centuries the courts swung in favour of the view that pension is either a bounty or a gratuitous payment for local service rendered depending upon the sweet will or grace of the employer not claimable as a right and therefore, no right to pension can be enforced through court. This view held the field and a suit to recover pension was held not maintainable. With the modern notions of social justice and social security, concept of pension underwent a radical change and it is now well-settled that pension is a right and payment of it does not depend upon the discretion of the employer, nor can it be denied at the sweet will or fancy of the employer. (Deokinandan Prasad v. State of Bihar & Ors.; 1971 AIR 1409, 1971 SCR 634, State of Punjab & Anr. v. Iqbal Singh and D.S. Nakara & Ors. v. Union of India; 1976 AIR 667, 1976 SCR (3) 360).

In Balbir Kaur and Another Vs. Steel Authority of India Ltd. and Another [(2000) 6 SCC 493], the Apex Court have observed, “…As regards the provisions of the Payment of Gratuity Act, 1972 (as amended from time to time) it is no longer in the realm of charity but a statutory right provided in favour of the employee…”

The Payment of Gratuity Act, 1972  is a welfare statute provided for the welfare and succour of the employees who are the backbone of any organisation, company, an organised setup or a startup.

“The  Payment  of  Gratuity  Act,  1972  is enacted  to introduce a  scheme for  payment  of  gratuity  for  certain industrial and  commercial establishments,  as a  measure of social security. It has now been universally recognised that all persons  in society  need  protection  against  loss  of income due to unemployment arising out of incapacity to work due,  to   invalidity,  old   age,  etc.   For   wage-earning population, security  of income, when the worker becomes old or infirm, is of consequential importance. The provisions of social security  measures, retiral  benefits like  gratuity, provident fund  and pension  (known as  the triple benefits) are of special importance. In  bringing the  Act on  the statute-book, the intention of the legislature     was  not  only  to  achieve  uniformity  and reasonable degree of certainty, but also to create and bring into force  a self-contained,  all embracing,  complete  and comprehensive code relating to gratuity. The significance of this legislation  lies in the acceptance of the principle of gratuity as a compulsory statutory retiral benefit.” ( quoted from Jeewanlal (1929) Ltd. Etc. Vs. Appellate Authority under the Payment of Gratuity Act & Ors., (1984 AIR 1842, 1985 SCR (1) 664).

The life expectancy in India, with better standard of living and improved health care, has risen from 32 years in 1947 to 69.14 years in 2020. Hence the importance of gratuity, which is essentially a retiral benefit, is more evidently felt nowadays than in the past.

On the flipside is, however, the debilitating effect of labour turnover on the employer.  A workman gains experience during his tenure of employment. An experienced workman is capable of securing another employment with better emoluments. He can also be tempted by other employers with more lucrative salary. But sadly in such event the employer will be at receiving end.  The exit of an experienced workman would surely be a loss of energy, time and resource for his employer, and he has to start over again by reskilling a new workman at the place of the man who demitted office. Hence, the general principle underlying the gratuity scheme was that by service over a long period the employee should be entitled to claim a certain amount as a retirement benefit. It was earlier thought that a long minimum period for earning gratuity in the case of voluntary resignation is necessary to curb the tendency of the workmen to change employment frequently. Further the gratuity amount encourages the employee to work efficiently and improve productivity under a particular employer for a longer period.

However, with passage of time the loyalty of employees towards the employer and his reciprocity towards employees have dwindled. Things got particularly worse with advent of the IT Sector, where employees switched their jobs with immunity. Besides new avenues of employment also made forays into labour market and people preferred to be fixed term employees, part-time workers, gig workers and platform workers.

Hence there was demand from several quarters to reduce the entitlement of gratuity to one year continuous service across all categories. The Government, however, vide SS Code intend to reduce only the gratuity entitlement for fixed term employee to one year and for working journalists to three years.

 By  the Payment of Gratuity (Amendment) Act, 2018, the central Government have also tried to promote social welfare to working women by providing leverage in shape of extended period of maternity leave from ‘twelve weeks’ to ‘twenty six weeks’ to be included in continuous service. 

We must stringently implement the Payment of Gratuity Act  since it is still not followed by many companies or corporations in general , small commercial establishments and MSMEs in particular. Awareness also needs to be generated among employees on the beneficial effect of gratuity so that they prefer to stick to their employment under a particular employer for longer periods.

As a parting repartee, I must add that the Government of India wishes to extend social security to the informal sector by some path breaking measures in the Code on Wages, 2019 and the Social Security Code, 2020. It proposes to  provide life and disability cover, health and maternity, provident fund, employment  injury benefit, housing,  etc. to unorganised, platform and gig workers, which will be funded through a combination of contributions from the Central Government, State Governments, and  Aggregators (digital intermediaries/ sellers/ service providers, who provide employment to the platform and gig workers).

The need of the hour is, therefore, to extend life and disability cover and retiral or old age assistance, for workers in informal sectors. I sum up by quoting Andrew Jackson, who said,  “Every man is equally entitled to protection by law. But when the laws undertake to add… artificial distinctions, to grant titles, gratuities, and exclusive privileges—to make the rich richer and the potent more powerful— the humble members of society—the farmers, mechanics, and laborers, who have neither the time nor the means of securing like favors to themselves, have a right to complain of the injustice of their government.”

REFERENCES:

1. The Payment of Gratuity Act, 1972;
2. The Social Security Code, 2020;
3. https://www.wikipedia.org/;
4. https://indiankanoon.org/;
5. https://www.legalserviceindia.com/;
6. https://www.casemine.com/;
7. https:// legitquest.com/;