Payment of Gratuity Act Project

8/13/2019 Payment of Gratuity Act Project

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LABOUR LAW PROJECT

PAYMENT OF GRATUITY

ACT(SECTIONS 7 TO 15)

BY,

RUBEN GEORGE ROCK,

ROLL NO 548,IX SEMESTER,

NUALS


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ACKNOWLEDGMENT

I would like to record my sincere gratitude to Mrs. Liji Samuel, faculty, Labour Law, for

providing us with an understanding of the subject and for the guidance and support provided.

Thanks also extend to librarians of NUALS college library for supplying the necessary resources.

Also I am indebted to my friends who provided me with support in completing this project.


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INDEX

DETERMINATION OF THE AMOUNT OF GRATUITY INSPECTORS AND THEIR POWERS UNDER THE PAYMENT OF GRATUITY ACT RECOVERY OF GRATUITY PENALTIES UNDER THE ACT PROTECTION OF ACTION TAKEN IN GOOD FAITH PROTECTION OF GRATUITY VALIDATION OF PAYMENT OF GRATUITY OVERRIDING NATURE OF THE ACT RULE MAKING POWER CONDONATION OF DELAY APPENDIX


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DETERMINATION OF THE AMOUNT OF GRATUITY

Section 7of the Act details about how the amount of gratuity has to be determined. The section lays

down that:

(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 (i) 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.

(3-A) 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.


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(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 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:


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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 theappeal, 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 subsection (4) or deposits with the appellate authority such amount.

(8) The appropriate Government or the appellate authority, as the case may be, after giving the parties

to the appeal a reasonable opportunity of being heard, confirm, modify or reverse the decision of the

controlling authority.

In Mandar Union Sanatorium and Hospital v. M. B. Sathe & Ors1 it was held that the word

determination includes the determination of the liability and while determining the liability the

authority can say that there exists no liability on one ground or the other. The word "determination"

cannot be given a narrow interpretation. Wider interpretation has to be given and if the authority finds

that it is having no jurisdiction to decide it can determine that there is no liability which can be

determined by the Authority concerned. As far as the vires of Sections 4 and 7 is concerned the Court

did not find any force in the submission of the learned Counsel for the petitioner. Without entering into

controversy whether there is any provision for the payment of interest or not in the Act, Rules and

notification made thereunder, the Court made it clear that the authority while dealing with the

beneficial legislation is duty-bound to pay by way of compensation the interest to the claimant.

In M.C.D. v. Nand Kishor2 it was held that non- payment of gratuity due to the employee was a

continuing wrong on the part of the employer and the employer is not entitled to complain delay by the

employee in approaching controlling authority so far as to defeat his claim for gratuity.

In Charan Singh v. Birla Textiles and Anr3it was held that there is no provision in the Act for payment of

interest when gratuity is qualified by the controlling authority and before the Collector is approached for

its realization. At the stage of recovery of gratuity the controlling authority can issue a certificate to the

Collector to recover gratuity with interest.

1(1986) II LLJ 135 (Rajasthan)

2(2003) II LLJ 56 (Delhi)

3(1989) I LLJ 250


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In the Management of Khas Karanpura Colliery of M/s. Central Coal Field Ltd v. Regional Labour

Commissioner & Ors4 it was held that the Authority constituted under Sec 7 shall have to compute

gratuity for each year admissible keeping in view the wages drawn that year and shall go on till each

started receiving wages upto Rs. 1000/- (ie the maximum wages set by Sec 2(e) of the Act). It is not open

to the authority to take the maximum fixed wages limit as earning for each month and direct payment

of gratuity on that basis.

The sub- section (3-A) of section 7 which provides that if the employer does not pay gratuity within 30

days of it becoming payable , the workman will be entitled to interest, was introduced only in 1987 by

the Amending Act 22 of 1987. Therefore the said sub- section has no retrospective effect.5

The Supreme Court while interpreting Sec 7(3-A) has held that there is a clear command mandating the

employer to pay gratuity within the specified time and to pay interest on its delayed payment. Nodiscretion is available to exempt or relieve the employer from payment of interest to the claimant

employee on belated payment of gratuity.6

Gratuity and pension are not a matter of bounty to be distributed by the employer, so was held in the

case of Gujarat State Road Transport Corporation v. Kriti Kumar Ponjalal Barot7. Non vacating of quarter

by employee cannot be held as a ground by the employer t withhold the payment of gratuity.8

In Gloster Jute Mills Ltd v. Deputy Secretary Labour Department and Ors9the petitioner challenged the

decision of the appellate authority whereby the appellate authority rejected the appeal of the petitioner

company on the ground that it did not deposit the entire amount of money as directed by the

controlling authority. The High Court held that the rejection of the appeal by appellate authority was

not proper. It observed that the petitioner is duty bound to deposit only the amount that employer

admits to be payable, not the entire amount directed by the controlling authority.

The production of certificate of Controlling Authority evidencing the deposit of gratuity amount by the

employer is necessary for preferring an appeal under Sec 7(7) of the Act. However, non- compliance of

condition with regard to production of the certificate and deposit doesnot result in the disposal of

4(1989) II LLJ 395 (Patna)

5Bombay Gas Public Ltd v. Papa Akbar and Anr (1990) II LLJ 220 (Bom)

6Gangahanume Gowda v. Karnataka Agro Industries Corporation Ltd. (2003) I LLJ 1119 (SC)

7(2003) III LLJ 247 (Guj)

8

9(2002) III LLJ 908 (Cal)


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appeal. It is only consigned and the appellant can be directed to deposit the gratuity amount with

appellate authority.10

In Warangal District Co- operative Society Ltd v. Appellate Authority under the Payment of Gratuity Act11

it was held that the Section 7(7) of the Act overrides the provisions of the Limitation Act on the issue ofcondonation of delay since it is the settled principle of interpretation of statute that if there are two

mandates by sovereign legislature, the latter of the two prevails.

INSPECTORS AND THEIR POWERS UNDER THE PAYMENT OF GRATUITY ACT

Section 7-A states that the appropriate Government may, by notification, appoint as many Inspectors, as

it deems fit, for the purposes of this Act. The area over which the inspector exercises his authority can

be defined by a general or special order of the Government. Also, in case if 2 or more inspectors are

appointed for the same area, the allocation of the power between them can be made by such an order

Powers of such inspectors are listed under section 7-B of the Act. The inspector has to ascertain whether

the provisions of the Act are been complied by the concerned parties. The powers of the inspector can

be listed as:

1. He can require an employer to furnish information which he may consider necessary2. He can enter and inspect any premises of or place in any factory, mine or any other

establishment over which the Act applies and examine any register, record or notice or other

document which are required to be kept or exhibited under the Act. Such entry and inspection

has to be made at reasonable hours with the assistance of such persons who are in the service

of government or local or any public authority.

3. He can examine such person who is an employer of the establishment or any person who he hasreasonable cause to believe to be an employee during the inspection.

4. He can make copies of, or take extracts from any register, record, notice or other document, ashe 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,

10M/s Sakhari Ganna Vikas Samiti Ltd v. Controlling Authority under Payment of Wages Act (1993) II LLJ 1108 (All)

11(2002) III LLJ 616 (AP)


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such register, record, notice or other document as he may consider relevant in respect of that

offence.

The provisions of Code of Criminal Procedure will apply to such search or seizure so far as possible as

similar to a search or seizure made under the authority of a warrant issued under Section 94 of Criminal

Procedure Code.

RECOVERY OF GRATUITY

Section 8 of the Act provides that 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 tothe 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.

InChamparan Sugar Company Ltd v. The Joint Labor Commissioner and the Appellate Authority12

it was

held that by virtue of provisions of Section 8 of the Act payment on interest of Gratuity amount is the

mandate of law itself and is not dependant on an express claim by the employee thereof. The right to

interest accrues to the employee from the failure of the employer to perform his statutory duty to

tender and pay gratuity and not from any formal demand made by the employee. Similarly the liability

to pay interest does not stem from the certificate of the Controlling Authority but from the default in

the performance of his duty by the employer.

PENALTIES UNDER THE ACT

Section 9 of the Act imposes following penalties for the contravention of its provisions:

121987 (54) FLR 50 (Patna)


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Offence Penalty

1. Avoiding any payment or enabling anyother person to avoid such payment or

makes any false statement.

Imprisonment which may extend to six months or

with fine which may extend to ` 10,000/- or with

both

2. Contravenes or makes default incomplying with the provisions of the Act or

any Rules

Imprisonment which not less than 3 months but

may extend to 1 years or with fine not less than `

10,000 which may extend to ` 20,000/- or with

both

Non-payment of gratuity Imprisonment which not less than 6 months but

may extend to 2 years or with fine which may

extend to ` 10,000/- or with both

Exemption of Employer from Liability in certain cases:

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 other

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 ofthe 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


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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.13

Cognizance of offence- Cognizance of offence can be taken only on complaint made by authority

appointed by Appropriate Government. Complaint can also be filed by controlling authority if

employer did not pay gratuity within six months from prescribed time [Sec 11(1)]. Metropolitan

Magistrate or Judicial Magistrate of First class can try the offences punishable under the Payment of

Gratuity Act [Sec 11(2)].

PROTECTION OF ACTION TAKEN IN GOOD FAITH

Section 12 provides immunity to controlling authority or any other person in respect of anything which

is done in good faith or intended to be done for the furtherance of the provisions of the Act or any ruleor order made there under from suit or other legal proceedings.

PROTECTION OF GRATUITY

Gratuity payable under this Act is protected from being liable to be attached in execution of any decree

or order of any civil, revenue or criminal court.

Section 13 of the Payment of Gratuity Act provides this express protection. The said Section provides

that no gratuity payable under the Act shall be liable to attachment in execution of any decree or order

of any civil, revenue or criminal court. Therefore, even where a court orders attachment of properties of

a worker, yet Section 13 expressly prohibits attachment of gratuity amounts payable. The said

protection extends even over gratuity amounts payable in establishments, factories, etc. exempted

under Section 5 of the Act.

It may also be noted that Section 60(1) (g) of the Code of Civil Procedure also protects gratuities of

payable to pensioners of any employer from attachment. This tallies with the protection given by

Section 13 of the Payment of Gratuity Act, though the protection of the aforesaid provision of the CPC

only extends to pensioners, while Section 13 of the Gratuity Act applies to any employee meeting the

13Sec 10, The Payment of Gratuity Act 1972


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criteria of 5 years continuous service and then his service being terminated on account of

superannuation, retirement, resignation, death or disability.

In Calcutta Dock Labour Board and Anr V/s Smt Sandhya Mitra and Ors14 it was held that Payment of

gratuity being beneficial law in favour of workman is exempted from attachment by Court for

satisfaction of decree.

In view of provisions of S. 60(1)(g) of CPC and Sec 13 of Payment of Gratuity Act15, gratuity payable

under the Act to legal representative of deceased Govt employee does not lose its character and is not

liable to attachment in execution of any decree of civil court.

VALIDATION OF PAYMENT OF GRATUITY

Section 13A was inserted by The Payment of Gratuity (Amendment) Act, 2009 which provides for

validation of payment of gratuity. The section reads as:

Notwithstanding anything contained in any judgment, decree or order of any court, for the period

commencing on and from the 3rd day of April, 1997 and ending on the day on which the Payment of

Gratuity (Amendment) Act, 2009, receives the assent of the President, the gratuity shall be payable to an

employee in pursuance of the notification of the Government of India in the Ministry of Labour and

Employment vide number S.O. 1080, dated the 3rd day of April, 1997 and the said notification shall be

valid and shall be deemed always to have been valid as if the Payment of Gratuity (Amendment) Act,

2009 had been in force at all material times and the gratuity shall be payable accordingly:

Provided that nothing contained in this section shall extend, or be construed to extend, to affect any

person with any punishment or penalty whatsoever by reason of the non-payment by him of the gratuity

during the period specified in this section which shall become due in pursuance of the said notification.

It means that notwithstanding anything contained in any judgment, decree or order of any court for the

period commencing on and from the 3rd day of april, 1997 and till the day on which the amendment

Act, 2009 receives the assent of the president, gratuity shall be payable as if the Amendment Act , 2009

141985 (50) FLR 322 (SC)

15D. Vimala v Canara Bank, (1980) 1 Cur LR 228 (AP)


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has been in force at all material times. The amending Act of 2009 had made changes to the definition of

employee in Sec 2(e).

OVERRIDING NATURE OF THE ACT

The provisions of the Act and rules made under the authority of the Act will have effect over any other

law which is inconsistent with this Act. Therefore it overrides all other Acts in case of any inconsistency

with its provisions.

Even if an employee had made mistake in calculating the gratuity amount due to him and received a

lesser amount, he will not be estopped or barred in law from claiming the balance amount or from

initiating proceedings envisaged under this Act and rules for recovering the balance amount.16

Merely

becaude the employee had taken the initiative and asked for the payment of gratuity at a particular

sum, the employer will not stand absolved of his statutory obligation to pay the employee the proper

amount of gratuity he is entitled to.17

In Chairman-cum-MD, Orissa Mining Corp Ltd v. Controlling

Authority,Payment of Authority, Payment of Authority Act & Ors18 it was held that if there exist any

inconsistency between the Orissa Mining Corp Rules and Payment of Gratuity Act, the latter prevails by

virtue of Sec 14.

However in the case of National Textile Mills Corp v. Bhagirathi Gopal Martal And Ors19, it was held that

liability incurred by a textile mill prior to the taking over of the management by the Central Government

cannot be enforced against the Central Government or the Custodian in view of Sec 3(7) of the Textile

Undertakings ( Taking over of Management) Act 1983. In other words the liability accruing prior to the

appointed shall continue to be the liability of the Textile mill. Therefore the gratuity amount cannot be

recovered from the National Textile Corporation which is a Government establishment. The reasoning

given for the judgment was that Sec 14 of the Gratuity Act as well Sec 7 of the Textile Undertaking

198320

are both non obstante clause. Textile Undertaking Act being a special legislation concentrating

16Jeewan Lal and Ors v. Controlling Authority under the Payment of Gratuity Act and Ors (1982) I LLJ 86 (Mad)

17ibid

18(1995) I LLJ 381 (Orissa)

19(1992) II LLJ 111 Bom

20Sec 7- The provisions of this Act or any notification, order or rule made thereunder shall have effect

notwithstanding anything inconsistent therewith contained in any law (other than this Act) or in any instrument

having effect by virtue of any law other than this Act or in any decree or order of any court.


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only on sick industries and which came into effect at a latter point of time will thereof override Payment

of Gratuity Act.

The overriding effect of Sec 14 over other laws was asserted in Karnataka High Court judgment.21The

rules governing the service conditions of the employees of the establishment of Regional Provident FundCommissioner, Bangalore, provided that a person who has tendered his resignation shall not be entitled

to gratuity. In the aforementioned judgment Karnataka High Court held that the establishment of

Regional Provident Fund Commissioner is an establishment which comes within the meaning of Sec 1(3)

of the Payment of Gratuity Act. The Payment of Gratuity Act applies to every establishment within the

meaning of any law for the time being in force in relation to such establishment in a State. Therefore the

Payment of Gratuity Act applies to the establishment of Regional Provident Fund Commissioner

Bangalore. Sec 14 of the Act shall have overriding effect over the service regulations.

In Municipal Board Khurja v. Appellate Authority and Addl Labour Commissioner Kanpur22, the Municipal

Board was held to be an establishment. therefore by virtue of Sec 14 the provisions of the Gratuity Act

applies over its employees eventhough they are participants of provident fund benefits under Sec 76 (3)

of the UP Municipalities Act which specifically provides that a person who participates in provident fund

benefit shall not be entitled to gratuity.

RULE MAKING POWER

Section 15 of the Act states that:

(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

21Regional Provident Fund Commisioner v. Regional Labour Commissioner and Ors (1985) II LLJ 63 (Karnataka)

221986 (53) FLR 227 (All)


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modification or annulment shall be without prejudice to the validity of anything previously done under

that rule.

In exercise of the powers conferred by sub-section (1) of section 15 of the Payment of Gratuity Act, 1972

(39 of 1972), the Central Government made The Payment of Gratuity (Central) Rules, 1972 which cameinto effect on 16th September, 1972.

CONDONATION OF DELAY

Rule 10 of the Payment of Gratuity (Central) Rules, 1972 says The Controlling Authority may accept any

application on sufficient cause being shown by the applicant, after the expiry of the specified period.

However maximum condonation period allowed for an appeal is 60 days. Appellate Authority can not

condon beyond 120 days.23. It was observed in P. Rama Rao V Cont. Authority & ALC(C), Vijayawada &

Ors.24

that Rules prescribing for limitation are only procedural and do not intend to extinguish right of

employees. Moreover when employer has benefited from money belonging to employees, he cannot

resist claim on technical plea of limitation.

23Western Coalfields Ltd. V Cont. Authority under PGA, Jabalpur, 2000 Lab IC 3458 (MP)

241996 Lab IC 2765 (AP)


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APPENDIX

Formula for calculating gratuity amount for those who draw monthly salary

[(BASIC SALARY + DEARENCE ALLOWANCE)/26] X 15 X YEARS OF SERVICE = GRATUITY

Gratuity calculation formula for piece rated employees

(LAST DRAWN WAGES /26) X 15 X COMPLETED YEARS OF SERVICE = GRATUITY

Maximum Amount of Gratuity

The amount of gratuity cannot exceed Rs 10,00,000 . Even if it exceeds , maximum amount payable by

employer shall be Rs 10,00,000

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