This article is written by HEMA MODI, a second-year student of Pravin Gandhi College of Law, Mumbai. It provides an overview of The Payment of Gratuity Act, 1972 and its different provisions, along with landmark judgements.
The Payment of Gratuity Act is a genre of various statutes like the Minimum Wages Act, Employment and Social Policy, etc. which is an extension of labour laws and it lays down the minimum benefits to be provided to the employees. It is a social security enactment providing for the welfare benefits of the employees working in industries, companies and organisations.
Scope and Objective
The Payment of Gratuity Act,1972 was enacted with sole objective of providing gratuity i.e., a monetary award given for services rendered to the employees working in the factories, oilfields, mines, plantations, railway companies, shops or other establishments upon their superannuation (e.g.,old age retirement amount,etc.), retirement, resignation, death or disablement.
According to this Act, the continuous service means an uninterrupted service during the employment period. This includes the leave due to sickness, accident, lay off, strike, etc. If the interruption is of six months or one year, then the employee is not entitled to gratuity benefits. He/She should have worked for at least 190 days in mine or coalfield like establishment(where duration of work is only for 6 months) and 240 days in other areas.
Recently, a question arose before the Supreme Court of India that whether the services provided by the employees were regularised or not and whether they are entitled to gratuity amount or not in the case of Netram Sahu v. State of Chhattisgarh. The appellant employee had in all rendered 25 years and 3 months of service (22 years and 1 month as daily wager and 3 years and 2 months as regular work charge employees). However, the Appellant was not paid the gratuity amount by the State after his retirement because out of the total period of 25 years of his service, he worked 22 years as daily wager and only 3 years as a regular employee, the Supreme Court of India held that the state should release the gratuity amount of the employee because the Appellant had actually rendered the service for a period of 25 years. Because the services were regularised, the appellant was entitled to claim its benefit for a period of 25 years regardless of the post and the capacity on which he worked for 22 years. This shows that whether the services were regularized or not, is of no significance to the continuous service to the said Act.
The controlling authority shall be appointed by the appropriate government for the proper administration of this Act. The government may appoint different controlling authority for different areas also.
Payment of Gratuity
An employee is entitled for the payment of gratuity if he/she has rendered five years of continuous service on his superannuation, retirement, resignation, death, disablement. However, the five years of continuous service is not mandatory in the case where the termination is due to death or disablement. A retired person is also entitled to gratuity amount along with his pension. This was held in the case of Allahabad Bank and others v. All India Allahabad Bank Retired Employees Association, where the honorable court held that pensionary benefits may include both pension amount and gratuity amount but gratuity amount is a must to be paid to the employees.
In the case of death or disablement by accident or disease, the employer is under obligation to pay the gratuity amount to the employee’s nominee or the legal heir, as the case may be, irrespective of the number of years continuous services has been rendered.
The Act also has a provision for the minors as a legal heir in which the controlling authority has to invest the amount in such banks or other financial institutions for the benefit of the minor until he/she becomes a major.
Further, the Act provides for the services rendered for at least 6 months where the gratuity amount will be calculated at the rate of fifteen days wages based on the rate of wages last drawn by the employee concerned, provided that the amount paid for the overtime work will not be considered.
The amount of gratuity shall not exceed Rs. 10 Lakhs.
An employee holds a right to receive a gratuity for services rendered, however, this right of an employee can be curtailed in two conditions:
- If the termination is due to willful omission or negligence causing loss, or damage, or destruction of property belonging to the employer.
- If the termination is due to riotous or disorderly conduct or constitutes of an offence which is immoral in nature.
Section 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 section as and when necessary. Violation of this provision by anyone may lead to penalty.
Power to Exempt
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.
According to this 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.
Determination of the Amount 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.
In a landmark case of Y.K. Singla v. Punjab National Bank, the highest court of India, 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 for the benefit of the employee.
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.
Inspectors Appointed for the Purpose of this Act and their Powers
The government may appoint an inspector or inspectors who are deemed to be a public servant under Section 21 of Indian Penal Code 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 fulfilment of all the provisions of this Act.
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 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:
- The controlling authority should give the employer a reasonable opportunity to show the cause of such an Act.
- The amount of interest to be paid should not exceed the amount of gratuity under this Act.
Violation of the provisions of the Act shall entail certain penalties. They are:
- 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.
- 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.
- 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.
Exemption of Employer from Liability
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.
Cognizance of Offences
The court cannot take cognizance 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.
Protection of action taken in good faith
The controlling authority shall not be under any legal proceeding if the acts done by him is in good faith or under any rule or any order.
Protection of Gratuity
No exempted gratuity which is payable under this Act to the employee by the employer shall be liable to the attachment of any order or decree by any court.
Act to override other enactments
Since the Payment of Gratuity Act is complete in itself, therefore, this 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.
Power to make rules
The power to make rules in the Payment of Gratuity Act, 1927, shall rest with the appropriate government and declare by notification.
Validation of amendments made in this Act
The rules made has to be presented before both the houses of the parliament when in session. If both the houses are in conformity for the annulments or the modifications, then it shall be applicable immediately otherwise such modifications will have no effect.
The Payment of Gratuity Act, 1927, is a welfare statute provided for the welfare of the employees who are the backbone of any organisation, company or startups. The gratuity amount encourages the employee to work efficiently and improve productivity. Recently, by the Payment of Gratuity (Amendment) Act, 2018, the central government has tried to promote social welfare by providing leverage to the female employees who are on maternity leave from ‘twelve weeks’ to ‘twenty six weeks’.
However, the scope of this Act is limited to large scale companies or organisations and is not applicable to organisations where the number of employees is less than 10. Yet, the Act in its entirety is complete and therefore it overrides other Acts and statues in relation to gratuity. The only need of the hour is to change or modify the implementation of the Act as this Act is still not followed by many companies or corporations.