LABOUR LAW PROJECT

PAYMENT OF GRATUITY ACT

(SECTIONS 7 TO 15)

BY, RUBEN GEORGE ROCK, ROLL NO 548, IX SEMESTER, NUALS

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.

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

DETERMINATION OF THE AMOUNT OF GRATUITY

Section 7 of 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 subsection (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.

(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:

Provided that the appropriate Government or the appellate authority, as the case may be, may, if it is satisfied that the appellant was prevented by sufficient cause from preferring the appeal within the said period of sixty days, extend the said period by a further period of sixty days: Provided further that no appeal by an employer shall be admitted unless at the time of preferring the appeal, the appellant either produces a certificate of the controlling authority to the effect that the appellant has deposited with him an amount equal to the amount of gratuity required to be deposited under 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 Anr3 it 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 2

(1986) II LLJ 135 (Rajasthan) (2003) II LLJ 56 (Delhi) 3 (1989) I LLJ 250

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. No discretion 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 Ors9 the 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 5

(1989) II LLJ 395 (Patna) Bombay Gas Public Ltd v. Papa Akbar and Anr (1990) II LLJ 220 (Bom) 6 Gangahanume 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)

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 of condonation 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 necessary 2. 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 has reasonable 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, as he may consider relevant, and where he has reason to believe that any offence under this Act has been committed by an employer, search and seize with such assistance as he may think fit,

10 11

M/s Sakhari Ganna Vikas Samiti Ltd v. Controlling Authority under Payment of Wages Act (1993) II LLJ 1108 (All) (2002) III LLJ 616 (AP)

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 to the Collector, who shall recover the same, together with compound interest thereon at such rate as the Central Government may, by notification, specify from the date of expiry of the prescribed time, as arrears of land revenue and pay the same to the person entitled thereto: Provided that the Controlling Authority shall, before issuing a certificate under this section, give the employer a reasonable opportunity of showing cause against the issue of such certificate: Provided further that the amount of interest payable under this section shall, in no case, exceed the amount of gratuity payable under this Act. In Champaran 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:

12

1987 (54) FLR 50 (Patna)

Offence

Penalty

1. Avoiding any payment or enabling any Imprisonment which may extend to six months or other person to avoid such payment or with fine which may extend to ` 10,000/- or with makes any false statement. both

2. Contravenes

or

makes

default

in Imprisonment which not less than 3 months but

complying with the provisions of the Act or may extend to 1 years or with fine not less than ` any Rules 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 of the person he charges as the actual offender and by the prosecutor: Provided further that, if the person charged as the actual offender by the employer cannot be brought before the Court at the time appointed for hearing the charge, the Court shall adjourn the hearing from time to time for a period not exceeding three months and if by the end of the said period the person

charged as the actual offender cannot still be brought before the Court, the Court shall proceed to hear the charge against the employer and shall, if the offence be proved, convict the employer.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 rule or 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

13

Sec 10, The Payment of Gratuity Act 1972

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
14 15

1985 (50) FLR 322 (SC) D. Vimala v Canara Bank, (1980) 1 Cur LR 228 (AP)

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

16 17

Jeewan Lal and Ors v. Controlling Authority under the Payment of Gratuity Act and Ors (1982) I LLJ 86 (Mad) ibid 18 (1995) I LLJ 381 (Orissa) 19 (1992) II LLJ 111 Bom 20 Sec 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.

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.21 The rules governing the service conditions of the employees of the establishment of Regional Provident Fund Commissioner, 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
21 22

Regional Provident Fund Commisioner v. Regional Labour Commissioner and Ors (1985) II LLJ 63 (Karnataka) 1986 (53) FLR 227 (All)

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 came into 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.

23 24

Western Coalfields Ltd. V Cont. Authority under PGA, Jabalpur, 2000 Lab IC 3458 (MP) 1996 Lab IC 2765 (AP)

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