employer refuses to pay gratuity

In this article, Gaurav L. Deshpande, a practicing advocate at Aurangabad High Court discusses amendments to section 4 of the Payment of Gratuity Act.

The Payment of Gratuity Act, 1972 is for employees engaged in various establishment. The term Gratuity connotes a gift for the services rendered over a long period of time for an organisation.

This all exercises need to be done under social object i.e. to pay a particular amount as the gift for the whom, who has worked for an institution for a considerable period of time.

The act gives eligibility that, the person who worked for five or more years along with other requirements, are eligible under law for gratuity. Provisions of the Act are settled and there are catena of judgment covering various issues under the act.

The point of consideration or topic for present discussion is that employees claim gratuity ones they have received in full the retirement benefits along with gratuity as per their request, in view of the amendment in provisions of clause 3 to section 4. Section 4(3) of the act reads as,” The amount of gratuity payable to an employee shall not exceed. (Rs.3,50,000/-) which came to be amended (Rs.10,00,000/-). By the amending Act, 2010.

The issue arises is that, whether now once the employees, who have after retirement themselves filled in, FORM 1 and though themselves gave the calculation are now estopped from claiming the benefits in terms of amended provisions.

The peculiar circumstances in the present situations are that the employer bank is a co-operative society and is not in any manner supported or funded by the government. The bank has to run its business on its own funds raised. For those reasons from time to time the bank has insured itself with the Life Insurance Corporation for the payment of gratuity. It is also pertinent to note that, the employees joining the bank accepts the offer and in the appointment banks specifically mentions that, the employee has agreed to the benefits provided.

The retiring employees are/ can be categories into 3 classes VIZ.

  1. The employees who have been retired in due course.
  2. The employees who have been retired Under Voluntary Retirement Scheme.
  3. The employees whose gratuity calculation comes below 5 lacks.

So far as the questions of all the employees in concern there is direct judgment of the Hon’ble Supreme Court of India in the case of State Government Pensioners Association and ors. V/s The State of Andhra Pradesh reported in AIR 1986 Supreme Court 1907, wherein there was the discussion as to applicability of the payment of gratuity act on revised rates before or after the amendment and the law has been laid down that, the employees cannot claim once they are paid with.

It is been specifically held that the case with regards to gratuity, which has already been paid to the petitioner, on the then prevailing basis as it has obtained at the time of their respective dates of retirement and it has already been paid to them on that footing the transaction is completed and closed this ratio decidendi covers the present issue.

In the present discussion, it is admitted position that all the employees, who are seeking the benefits are retired from 2013 which to January 2017 they all have themselves filled in the application more particularly in the manner, FORM 1 appended to the Payment of Gratuity Rules 1972. And Those forms bear their signature. Also, all the employees have accepted the calculation. In view the aforementioned Judgment of the Hon’ble Supreme Court and the principle of jurisprudence, principle of employer-employee relationship and the principles of contract would now operate Estoppel and more particularly in the words of the judgment of Hon’ble Apex Court referred supra, once the transaction is completed and closed there is no scope for up-word or down word revision. The employees who have been retired in due course are not entitled to claim for the reasons based on the judgment of Hon’ble Apex Court supra.

Now in relation to the categories mentioned above, the employees who have opted for Voluntary Retirement Scheme in the case of Manojbhai L.Shaah and others V/s Union of India decided on 07/01/2015 it has been held that the employees who retire under the scheme form a separate class of employees, are given many benefits, which are not given to the employees retiring in normal course. If they of form a separate class by any stretch of imagination, it cannot be said that, of those who retire under the scheme and those in normal course are similarly situated. Thus those employees, who are retired by VRS scheme can be put off different footing.

So far as the employees whose calculation is less than Rs.3,50,000/-. There is no question of them seeking any more amount.

Those employees, who are retired in due course in that regard the employer bank is shielded with the protection of doctrine of Estoppel.

When the employer is secured then the settled legal principle the interpretation of the provisions needs to be done because payment of gratuity act being a welfare legislation though receiving liberal interpretation but there are some difficulties still sustaining in the jurisprudential aspects. The Hon’ble Apex Court, in the case of Regional Director Employees, A State Insurance Cooperation V/s Ramanuja Match industries reported in 1985 AIR Supreme Court 278 has held that, though the beneficent legislation to receive liberal interpretation, however the court not to travel beyond the scheme statute and extend scope statute on pretext of extending statutory benefits to these not cover by the scheme of the statute.

The plane reading of section 4 of Payment of Gratuity Act, which head as ” Payment of Gratuity”, which in its first clause gives the employees, who become illegible for gratuity.

In its clause 2 provides for the calculation of gratuity, which is a formula and in its 3rd clause which is negative in sense the upper limit to the payment of gratuity is embodied, intention of legislature behind inserting upper limit rather than lower limit which shows that, those provision needs slant weigh on the side of employer. If an exact interpretation of the section is to be done. The provisions need to look into the condition of service and embargo on the right of the employer to pay gratuity.

It is also to need to considered that while joining the service, the employer was made known the prevailing benefit which are incumbent for the service and after the service, those were very well known to the employees the gratuity his already secured with the insurance company by the bank and hence now the employees are not having any right to see the benefit.

The amended act of 2010 neither changes the entitlement nor it puts any burden on employer it only gives option. Thus employer, who are willing to pay more gratuity for them the ceiling extends from 3.5 to 10 lacks, which does not create any right in the employees more specifically when they have applied and has received gratuity for which transaction is closed and complete. in this view of the matter, I conclude, with my conclusion which is purely the opinion.

Those employees whose gratuity calculation is less than 3.5 lacks there is no question of them to seek enhancement. so far as the employees who are retired under voluntary Retirement scheme they cannot seek benefits of the amending provision and they stand on a different footing on the reasons /parameters Laid down in Manojbhais Judgment as they cannot equate themselves with those normally retiring and for those who retired in normal course for them the transaction is complete and closed this also bars those who retired voluntarily.


The payment of gratuity act, 1972- bare act

Commentary on The payment of gratuity act, 1972 by Kharbanda

The payment of gratuity rules 1972 bare act.

Authorities Cited

  1. Manojbhai Shah V/s Union of India Hon’ble  Supreme Court of India on 07/01/2015.
  2. AIR 1986 S.C. 1907 State Government Pensioners Association V/s State of Andhra Pradesh
  3. 1985 S.C. 278 Regional Director Employees A State Insurance Corporation V/s Ramanuja Match Industries.


Did you find this blog post helpful? Subscribe so that you never miss another post! Just complete this form…