Introduction
Gratuity is ‘a lump sum of money that employers pay their workers as a sign of gratefulness for the services delivered.’ There are two types of ‘retirement benefit’ generally available to workers. One is under the Payment of Gratuity Act, and the other is under the Provident Fund Act. In the first case, a worker who has put in not less than five years of work is entitled to a lump sum payment on retirement. Gratuity is fully paid by the employer, and no part comes from an employee’s salary. In the second case, every month the employee is expected to contribute the required money into a separate fund to enable this payment on retirement or termination of employment. Unfortunately, the employee is allowed to draw many types of loans from the fund as per his need for construction, marriage of children, and education, etc. As a result, very little is available at the time of retirement.
The word ‘gratuity’ has been derived from the Italian word ‘gratis’ which means ‘to give a gift.’ Gratuity is a kind of retirement benefit, like the provident fund or pension. At one time, it was treated as a payment gratuitously made by the employer to his employee, at his pleasure, for the recognition of the workman’s dedicated work and long-term meritorious service. But gradually, the workers consider this tradition as their right. Consequently, whenever an employer tried to stop gratuity payment to the workers at the time of retirement from their establishment, a dispute was raised by the existing workers.
Gratuity paid to workmen is intended to help them after retirement, whether the retirement is the result of the rules of superannuation, death or physical disability. It is no longer considered a bounty. It was pointed out in Delhi Cloth and General Mills Co. Ltd. v Their Workmen, that “the object of providing a gratuity scheme is to provide a retiring benefit to the workmen who have rendered long and unblemished service to the employer and thereby contributed to the prosperity of the employer.”
In the earlier days, gratuity schemes were introduced in some establishments either by voluntary action of the employers or through agreements between employers and workers. These schemes were, however, confined to particular establishments and even within those establishments, to certain categories of staff and there was no general legislation requiring payment of gratuity to industrial workers. As the right of industrial workers to receive gratuity has long been recognized by the Industrial Tribunals, yet the law relating to payment of gratuity was very vague and uncertain before passing of the present Act. There was good deal of disparity in the various schemes for the payment of gratuity in different States [Kerala Industrial Employees Payment of Gratuity Act, 1970; West Bengal Employees Payment of Gratuity Act, 1971].
In order to ensure uniform pattern of payment of gratuity to the employees throughout the country the enactment of a Central legislation was felt. The enactment of a Central law would also avoid different treatment to the employees of establishments having branches in more than one State where under, on conditions of their service, the employees are liable to transfer from one State to another [Statement of Objects and Reasons of the Bill]. Ultimately, all controversies were set at rest by passing of the Payment of Gratuity Act in the year 1972. The Act came into force on the 16th September 1972.
Object and Scope of the Act
As the preamble of the Act suggests, this Act aims to provide for a scheme for the payment of gratuity to employees engaged in factories, mines, oil fields, plantations, ports, railway companies, shops or other establishments and fields connected therewith or incidental thereto.
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 for social security. Gratuity enables the affected employee to meet the new situation which quite often means a reduction in earnings or even total stoppage of earnings. It is a sort of financial assistance to tide over post-retirement hardships and inconveniences. In the case of death of an employee, it provides much needed financial assistance to the surviving members of the family. Gratuity schemes, therefore, serves as instruments of social security and their significance in a developing country like India where the general income level are low cannot be over emphasized.
The provisions of social security measures, retiral benefits like gratuity, provident fund and pension (“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 to force a self-contained, all-embracing, complete and comprehensive code to force a self-contained, all-embracing, complete and secure acceptance relating to gratuity. The significance of this legislation on the acceptance of the principle of gratuity as a compulsory statutory retiral benefit (Jeewanlal Ltd. v Appellate Authority AIR 1984 SC 1842).
The Act applies to the whole of India. Application of the Act to an employed person depends on two factors. Firstly, he should be employed in an establishment to which the Act applies. Secondly, he should be an ‘employee’ as defined in Section 2(e).
According to Sec. 1(3), the Act applies to: (a) every factory, mine, oilfield, plantation, port and railway company; (b) every shop or establishment in which ten or more persons are employed, or were employed, on any day of the preceding 12 months; (c) Such other establishments or class of establishments in which ten or more employees are employed as the Central Government may specify. A shop or establishment once covered will continue to be covered under the Act even if the number of people employed falls below 10 at any time (Sec. 3A).
Salient Features of the Act
- The Payment of Gratuity Act, 1972 is enacted to introduce a scheme for the payment of gratuity for certain industrial and commercial establishments as a measure of social security. Gratuity is a sort of financial assistance to tide over post-retirement hardships and inconveniences.
- The Act is a self-contained and an exhaustive code, applicable to the whole of India, and the provisions of the Act have an overriding effect on all other Acts or instruments or contracts so far as they are inconsistent with this Act.
- The Acts is fairly sweeping in coverage, as it applies to all factories, mines, oil fields, plantations, ports and railways irrespective of the number of workmen employed by them. It also covers shops and establishments employing 10 or more persons.
- The Act gives a statutory right of gratuity to all the employees, who have rendered five years’ continuous service and whose services stand terminated on account of superannuation, or retirement, or resignation, or death or disablement.
- The Act provides the benefit of gratuity to all the employees irrespective of his wage level. Also, through the 2009 Amendment Act, the term “employee” has now been expanded to include such person hired to perform any type of labour.
- The Act provides both executive and quasi-judicial machinery viz. Controlling Authority and Appellate Authority for matters relating to nomination, determination and recovery of gratuity.
- In what event gratuity will become payable and how it will be quantified are detailed in Sec. 4. Before an employee can claim gratuity, he must have rendered continuous service for not less than 5 years; for every completed year of service he is legally required to pay him gratuity at the rate of 15 days’ wages based on the rate of wages last drawn by the employee. In case of an employee employed in a seasonal establishment the employer shall pay gratuity at the rate of 7 days’ wages for each season. The gratuity amount payable to an employee shall not exceed Rs. 20 lakhs (2018 Amendment).
- In some circumstances, the employer can reduce or partially or wholly forfeit the amount of gratuity of any employee when there is ‘misconduct’ on the part of the employee.
- It shall be the responsibility of the employers (except establishments of Central/State Governments) to obtain compulsory insurance regarding gratuity (Sec. 4A).
- Sec. 7 lays down the procedure for payment of the gratuity to eligible employee or his nominee. If any dispute or difference relating to gratuity arises then it shall be presented before the Controlling Authority by the employer or employee or both.
- The machinery provided for recovery of gratuity rests with the Controlling Authority. However, the orders of the Controlling Authority for payment or determination of gratuity are appealable before the appropriate Government or the Appellate Authority.
- Where an amount of gratuity is not paid by the employer within the prescribed time to the person entitled thereto, the Controlling Authority can get it recovered through the Collector as arrears of land revenue for payment to the person entitled (Sec. 8).
- Sec. 9 imposes certain penalties for avoiding payment of gratuity, for giving false statements/representation. If the offence relates to non-payment of gratuity under the Act, then the minimum of 6 months’ which may go up to two years’ imprisonment can be imposed. Under Sec. 10, if the employer proves that somebody else was the actual offender and that the employer was innocent, then the court will give the employer exemption from liability.
- Sec. 13 protects the amount of gratuity payable to the employee from attachment in execution of any decree or order of any civil, revenue or criminal court.
Payment of Gratuity (Amendment) Act, 2018
- The Government vide notification no. 1420(E) dated 29th March, 2018 has enhanced the gratuity ceiling under the Payment of Gratuity Act, 1972 from Rs. 10 Lakhs to Rs. 20 Lakhs with effect from 29th March, 2018.
- The 2018 Amendment has amended the provisions relating to calculation of continuous service for the purpose of gratuity in case of female employees who are on maternity leave from ‘twelve weeks’ to ‘such period as may be notified by the Central Government from time to time’. This period has been notified as twenty six weeks.
Definitions
Continuous Service [Sec. 2(c) r/w Sec. 2A]
Sec. 2(c) read with Sec. 2A defines ‘continuous service’ to mean uninterrupted service and this includes service which may be interrupted for sickness, accident, leave, lay-off, strike or lock-out or cessations of work not due to any fault of the employee concerned, whether such uninterrupted or interrupted services are rendered before or after the commencement of this Act. Where an employee is not in continuous service (as mentioned above) for any period of one year or six months, he shall be deemed to be in continuous service:
- for the said period of one year if he has actually worked for 190 days in a mine or establishment which works for less than 6 days a week and 240 days in any other case;
- for the said period of six months, if he has actually worked for not less than 95 days (in a mine or establishment which works for less than 6 days a week) and 120 days in any other case.
In the case of seasonal establishments, an employee shall be deemed to be in continuous service if he has actually worked for not less than 75 per cent of total number of days on which the establishment was in operation during the year. It has been held that the permanent employees were not entitled to payment of gratuity for the years they remained absent without leave and had actually worked for less than 240 days in a year. Also, they were not entitled to payment of gratuity in respect of the years in which there was no work allotted to them due to their failure to report to duty.
Payment of Gratuity (Amendment) Act, 2018
The 2018 Amendment to the Act has amended the provisions relating to calculation of continuous service for the purpose of gratuity in case of female employees who are on maternity leave from ‘twelve weeks’ to ‘such period as may be notified by the Central Government from time to time’. This period has been notified as twenty six weeks.
Employee [Sec. 2(e)]
According to Sec. 2(e), ‘employee’ means any person (other than an apprentice) employed on wages, in any establishment, factory, mine, oilfield, plantation, port, railway company or shop, to do any skilled, semiskilled, or unskilled, manual, supervisory, technical or clerical work, whether or not such person is employed in a managerial or administrative capacity but does not include any such person who holds a post under the Central/State Government and is governed by any other Act or by any rules providing for payment of gratuity.
[The wage ceiling of Rs. 3,500/- which was earlier in the Act has been removed. With the removal of ceiling on wage, every employee will become eligible for gratuity, irrespective of his wage level w.e.f. 24th May, 1994. The object being to give the benefit of gratuity to all the employees and to widen the coverage.]
In Ahmedabad Pvt. Primary Teachers Association v Administrative Officer (2004) 1 SCC 755, it was held that a ‘teacher’ is not covered under the definition of ‘employee’ under the Act. The Legislature has amended the Act in 2009. Through the 2009 Amendment Act, the term “employee” has now been expanded to include any person hired to perform any type of labour. The amended definition reads: “employee” means any person (other than an apprentice) who is employed for wages, whether the employment express or implied, in any kind of work, manual or otherwise, in or in connection with the work of a factory, mine, oilfield, plantation, port, railway company, shop or other establishment to which this Act applies, but does not include any such person who holds a post under the Central or State Government and is governed by any rules providing for payment of gratuity.
As a result, a teacher is considered an employee for the purposes of the Act. The Supreme Court confirmed this in Birla Institute of Technology v State of Jharkhand (2019) 4 SCC 513. The Apex Court, recently, in Independent Schools’ Federation of India (Regd.) v Union of India (2022), upheld the Payment of Gratuity (Amendment) Act, 2009’s constitutional validity and held that the Amendment aims to bring equality and provide teachers with equitable treatment.
LEADING CASE: BIRLA INSTITUTE OF TECHNOLOGY v STATE OF JHARKHAND [(2019) 4 SCC 513]
[A ‘teacher’ is an ‘employee’ covered by the definition of ‘employee’ in the 1972 Act. Teachers were brought within the purview of “employee” as defined in Sec. 2(e) of the Payment of Gratuity Act, 1972 by Amending Act No. 47 of 2009 with retrospective effect from 03.04.1997.]
Facts and Issues – The appellant is a premier technical educational institute of repute in the country. It is known as “Birla Institute of Technology” (BIT). Respondent (a teacher) joined the appellant Institute as Assistant Professor on 16.09.1971 and superannuated on 30.11.2001 after attaining the age of superannuation. Respondent then made a representation to the appellant and prayed therein for payment of gratuity amount under the Payment of Gratuity Act, 1972. The appellant, however, denied to pay the amount of gratuity as demanded by the respondent. Respondent, therefore, filed an application before the Controlling Authority under the Act against the appellant and claimed the amount of gratuity. The controlling authority directed the appellant to pay a sum of Rs. 3,38,796/- along with interest at the rate of 10% p.a. towards the gratuity to the respondent. The appellant felt aggrieved and filed appeal before the appellate. The appellant felt aggrieved and filed appeal before the Appellate Authority under the Act, which dismissed the appeal. The High Court also took the similar view. This resulted in the appeal to the Supreme Court.
The short question, which arises for consideration in this appeal, is whether the Courts below were justified in holding that respondent was entitled to claim gratuity amount from the appellant (employer) under the Act.
Observations and Decision – The Supreme Court observed: The issue in question was subject matter of the decision rendered in Ahmedabad Pvt. Primary Teachers Association v Administrative Officer (2004) 1 SCC 755. This Court had examined the question in detail regarding the meaning of the word “employee” as defined in Sec. 2(e) of the Act as it stood then. The “employee” defined in Sec. 2(e) of the Act means any person (other than reads as under: “2. (e) employee means any person (other than an apprentice) employed on wages, in any establishment, factory, mine, oilfield, plantation, port, railway company or shop, to do any skilled, semiskilled, or unskilled, manual, supervisory, technical or clerical work, whether the terms of such employment are express or implied, and whether or not such person is employed in a managerial or administrative capacity, but does not include any such person who holds a post under the Central/State Government and is governed by any other Act or by any rules providing for payment of gratuity.”
In Ahmedabad Pvt. Primary Teachers Association, it was observed:
- It is a legitimate rule of construction to construe words in an Act of Parliament with reference to words found in immediate connection with them. The contention advanced that teachers should be treated as included in the expression “unskilled” or “skilled” cannot, therefore, be accepted. The teachers might have been imparted training for teaching or there may be cases where teachers who are employed in primary schools are untrained. A trained teacher is not described in the industrial field or service jurisprudence as a “skilled employee”. Such adjective generally is used for employee doing manual or technical work. Similarly, the words “semi skilled” and “unskilled” are not understood in educational establishments describing nature of job of untrained teachers.
- Trained or untrained teachers are not “skilled”, “semiskilled”, “unskilled”, “manual”, “supervisory”, “technical” or “clerical” employees. They are not employed in “managerial” or “administrative” capacity. Occasionally, even if they do some administrative work as part of their duty with teaching, since their main job is imparting education, they cannot be said to be employed in “managerial” or “administrative” capacity. The teachers are clearly not intended to be covered by the definition of “employee”.
- The legislature was alive to various kinds of definitions of the word “employee” contained in various previous labour enactments when the Act was passed in 1972. If it intended to cover in the definition of “employee” all kinds of employees, it could have adopted the same inclusive language as is contained in Sec. 2(f) of the Employees’ Provident Funds Act, 1952 which defines “employee” to mean “any person who is employed for wages in any kind of work, manual or otherwise, in or in connection with the work of an establishment…”. Non-use of such wide language in the definition of “employee” in Sec. 2(e) of the Act of 1972 reinforces our conclusion that teachers are clearly not covered in the definition.
In the present case, the Apex Court observed: The decision rendered in Ahmedabad Pvt. Primary Teachers Assn., therefore, led the Parliament to amend the definition of “employee” as defined in Sec. 2(e) of the Payment of Gratuity Act in order to extend the benefit of gratuity to the teachers by amending Act No. 47 of 2009 w.e.f. 31.12.2009 with retrospective effect from 03.04.1997. Sec. 1(3)(c) of the 1972 Act empowers the Central Government to apply the provisions of the said Act by notification in the Official Gazette to such other establishments or class of establishments in which ten or more employees are employed. Accordingly, the Central Government had extended the provisions of the said Act to the educational institutions employing ten or more persons.
The amended definition reads as under: “(e) “employee” means any person (other than an apprentice) who is employed for wages, whether the terms of such employment are express or implied, in any kind of work, manual or otherwise, or in connection with the work of a factory, mine, oilfield, plantation, port, railway company, shop or other establishment to which this Act applies, but does not include a such person who holds a post under the Central Government or a State Government and is governed by any other Act or by any rules providing for payment of gratuity.”
In our considered opinion, in the light of the amendment made in the Payment of Gratuity Act as detailed above, reliance placed by the learned counsel appearing for the appellant (employer) on the decision of Ahmedabad Pvt. Primary Teachers Assn. is wholly misplaced and does not help the appellant in any manner. It has lost its binding effect.
Learned counsel for the appellant then urged that the constitutional validity of Amending Act No. 47 of 2009 is under challenge in this Court in a writ petition, which is pending. Be that as it may, in our view, pendency of any writ petition by itself does not affect the constitutionality of the Amending Act, and nor does it absolve the respondent (teacher) in any manner in claiming gratuity amount from the appellant (employer) under the Act.]
Retirement [Sec. 2 (q)]
“Retirement” means termination of the service of an employee otherwise than on superannuation.
Superannuation [Sec. 2(r)]
“Superannuation” in relation to an employee means the attainment by the employee of such age as is fixed in the contract or conditions of service as the age on the attainment of which the employee shall vacate the employment.
Wages [Sec. 2(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 included dearness allowance but does not include any bonus, commission, house rent allowance, overtime wages and any other allowance.
The Controlling Authority and the Appellate Authority
The Controlling Authority and the Appellate Authority are two important functionaries in the operation of the Act. Section 3 of the Act says that the appropriate Government may by notification appoint any officer to be a Controlling Authority who shall be responsible for the administration of the Act. Different controlling authorities may be appointed for different areas.
Section 7(7) provided for an appeal being preferred against an order, of the Controlling Authority to the appropriate Government or such other authority viz. the Appellate Authority, as may be specified by the appropriate government in this behalf. Appellate Authority is not a Court but only an executive authority with quasi-judicial powers.
When is Gratuity Payable? [Eligibility Conditions] [Sec. 4(1)]
According to Sec. 4(1), gratuity shall be payable to an “employee” on the termination of his employment after he has rendered continuous service for not less than five years:
- on his superannuation, or
- on his retirement or resignation, or
- on his death or disablement due to accident or disease.
Note: The completion of continuous service of five years is not necessary where the termination of the employment of any employee is due to death or disablement. In case of death of the employee, gratuity is to be paid to his nominee or in the absence of nomination to his heirs.
Where an employee claims gratuity on the basis of an agreement, it was held in D.S. Purwar v Elphinstone Spinning and Weaving Mills, that the claim of gratuity on the basis of an agreement is outside the scope of entitlement under the Payment of Gratuity Act, 1972.
In view of provisions of Sec. 2(c) which defines ‘continuous service’ as service whether rendered prior or after commencement of the Act, workers would be entitled for gratuity for the period of service rendered prior to commencement of the Act.
A retired person is also entitled to a gratuity amount along with his pension. This was held by the Supreme Court in Allahabad Bank v All India Allahabad Bank Retired Employees Assn. (2009); the pensionary benefits may include both pension amount and gratuity amount, but gratuity amount is a must to be paid to the employees.
To Whom is Gratuity Payable?
It is payable normally to the employee himself. However, in the case of death of the employee it shall be paid to his nominee and if no nomination has been made, to his heirs and where any such nominees or heirs is a minor, the share of such minor, shall be deposited with the Controlling Authority who shall invest the same for the benefit of such minor in such bank or other financial institution, as may be prescribed, until such minor attains majority [Provisos, Sec. 4(1)].
Determination of Gratuity Payable [Sec. 4(2)]
Establishment other than seasonal establishment: Sec. 4(2) of the Act lays down that 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, the wages to be calculated on the rate of wages last drawn by employee concerned.
In the case of piece-rated employees, 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 the purpose, the wages paid for any overtime work shall not be taken into account.
Seasonal establishments: In seasonal establishments the employees are classified into two groups, viz.; those who work throughout the year and (ii) those who work only during the season. The former would be entitled to gratuity at the rate of 15 day’s wages for every completed year or part thereof in excess of six months. The latter (those who work only during the season) are, however, entitled to receive gratuity at the rate of 7 days for each season.
xplanation: 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 twenty-six and multiplying the quotient by fifteen.
Formula for Calculation of Gratuity
Gratuity in India is calculated using the formula:
Gratuity = Last Drawn Salary × 15/26 × No. of Years of Service
- The ratio 15/26 represents 15 days out of 26 working days in a month.
- Last drawn salary = Basic Salary + Dearness Allowance.
- Years of Service are rounded down to the nearest full year. For example, if the employee has a total service of 20 years, 10 months and 25 days, 21 years will be factored into the calculations.
- A period of 6 months or more shall be considered as one year.
Ceiling of Gratuity [Maximum Limit on Gratuity] [Sec. 4(3)]
The gratuity amount payable to an employee shall not exceed Rs. 10 lakhs. In other words, the maximum limit of the amount of gratuity payable is Rs. 10 lakhs.
Payment of Gratuity (Amendment) Act, 2018
However, the Government vide notification no. 1420(E) dated 29th March, 2018 has enhanced the gratuity ceiling under the Payment of Gratuity Act, 1972 from Rs. 10 Lakhs to Rs. 20 Lakhs with effect from 29th March, 2018 (considering the inflation and wage increase even in case of employees engaged in private sector). The enhancement in gratuity ceiling has been implemented with prospective date only. Because, implementation of the same with retrospective effect will be administratively difficult and employers may not have sufficient liquidity to meet the arrear liabilities.
The 2018 Amendment will ensure harmony amongst employees in the private sector and in Public Sector Undertakings/Autonomous Organizations under Government who are not covered under Central Civil Services (Pension) Rules, 1972. These employees will be entitled to receive higher amount of gratuity at par with their counterparts in Government sector [Before implementation of 7th Central Pay Commission, the ceiling under CCS (Pension) Rules, 1972 was Rs. 10 Lakhs. However, with implementation of 7th Central Pay Commission, in case of Government servants, the ceiling has been raised to Rs. 20 Lakhs].
Computation of Gratuity of a Disabled Employee [Sec. 4(4)]
Due to any accident or disease an employee may become disabled with the result that he cannot do the same work with the same efficiency. The employer may re-employ such employee on reduced wages. The gratuity of this disabled workman will be computed in two parts:
- for the period preceding the disablement – gratuity is calculated on the basis of the wages last drawn by him at the time of the termination of his service.
- For the period subsequent to the disablement – gratuity will be computed on the basis of the reduced wages as drawn by him at the time of the termination of his service.
The total of the gratuity of these two periods will be the amount of gratuity payable to the disabled employee.
Protection of Better Terms of Gratuity [Sec. 4(5)]
The right of any employee to receive better terms of gratuity under any award, or agreement, or contract with the employer is protected. Where a particular provision in an existing gratuity scheme is more favourable but some other provisions are less favourable, the employees must make a choice of one of the two schemes in its entirety as more favourable.
Thus, if a gratuity scheme under an award, or agreement or contract with the employer provides for one month’s wages for each year with the stipulation that gratuity is payable on the basis of the minimum of ten year’s service, the employee cannot ask for reduction of the period of five years while retaining the higher quantum of gratuity as in the existing scheme. Similarly, where one month’s basic wages are provided in a scheme, the employees will have either to continue the same, if found more favourable in general, or revert to fifteen days’ wages as per the Act.
Forfeiture of Gratuity [Sec. 4(6)]
In some circumstances, the employer can reduce or partially or wholly forfeit the amount of gratuity of any employee. The Act deals with this issue in two parts.
Sec. 4(6)(a) provides that 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, gratuity shall be forfeited to the extent of the damage or loss so caused.
Sec. 4(6)(b) (a) refers to a case where the services of an employee have been terminated for riotous and disorderly conduct or any other act of violence on his part; or 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 such cases the gratuity payable to the employee may be wholly or partially forfeited. (Prior to the amendment of the Act in 1984, the forfeiture in such cases was total).
Compulsory Insurance [Sec. 4A]
It shall be the responsibility of the employers (except establishments of Central/State Governments) to obtain compulsory insurance regarding gratuity. Gratuity shall be insured by the employer under the Life Insurance Corporation of India and the premium shall be paid by the employer.
The appropriate Government may exempt:
- employers who have already established an approved Gratuity Fund in respect of his employees and who desires to continue such arrangement; and
- employers who have already established an approved Gratuity Fund and who desire to continue with the same.
For the purposes of this section, every employer shall within a prescribed time get his establishment registered with the controlling authority in the prescribed manner and those employers who have taken an insurance as referred to or have established an approved gratuity fund shall be registered.
If there is any default on the part of the employer in payment of premium to the insurance company or by way of contribution to an approved gratuity fund, he shall be liable to pay the amount of gratuity due along with interest for delayed payments to the controlling authority. Contravention of this is punishable with fine which may extend to Rs. 10,000 and in case of continuing offence with a further fine which may extend to Rs. 1,000/- for each day during which the offence continues.
Exemptions under the Act [Sec. 5]
The appropriate Government may exempt, by notification, any establishment, factory, mine, oilfield, plantation, port, railway company or shop to which this Act applies from the operation of the provisions of this Act:
- If there is such a provision in that establishment under which the employees are given more amount as gratuity in comparison to this Act or a better scheme than this Act has been implemented.
- If any such agreement, settlement or award is in force in that establishment under which the employees get better amount than the amount of this Act.
Procedure (Application) for Payment of Gratuity [Sec. 7(1)-(3A)]
- It shall be necessary for the employee entitled to get gratuity or in case of his death his nominee or heir, to submit an application to the employer regarding payment of the amount of gratuity [Sec. 7(1)].
- As soon as gratuity become payable the employer shall, whether the application 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 [Sec. 7(2)].
- The employer shall arrange to pay the amount of gratuity within 30 days from the date of its becoming payable to the person to whom it is payable [Sec. 7(3)].
- If an employer fails to pay the amount of gratuity within the time limit due to any reason, he may request in writing to the Controlling Authority to extend the time-limit. But in such condition the amount of gratuity shall be paid by the employer with simple interest after the time-limit [Sec. 7(3A)]. 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.
Dispute as to the Amount of Gratuity or Admissibility of Claim [Sec. 7(4)-(6)]
If any dispute or difference related to gratuity arises in any industrial establishment then it shall be presented before the Controlling Authority by the employer or employee or his nominee. The employer shall deposit with the controlling authority such amount as he admits to be payable by him. The controlling authority shall determine the amount of gratuity payable to an employee and direct the employer to deposit such amount in excess of the amount already deposited by the employer. The controlling authority shall pay the amount deposited, including the excess amount, is any, deposited by the employer, to the person entitled thereto.
The Controlling Authority has been vested the powers of a civil court. So it can make enquiry, can give chance to the employer and employee to present the witnesses or documents, can direct to submit affidavit. Finally, the Controlling Authority shall give decision which shall be acceptable for both the employer and the employee.
If an employer or an employee is aggrieved by the decision of the Controlling Authority then he may appeal against that decision before appropriate Government or Appellate Authority within 60 days from the date of receipt of the decision. The appropriate Government or the appellate authority may after giving the parties to the appeal a reasonable opportunity of being heard, confirm, modify or reverse the decision of the controlling authority. The decision given by them shall be applicable on the employer, employee and the controlling authority.
Recovery of Gratuity [Sec. 8]
Section 8 provides that if the gratuity is not paid by the employer within the prescribed time, the Controlling Authority shall, on an application by the aggrieved person, issue a certificate for that amount to the Collector, who shall recover the same together with the compound interest thereon, as arrears of land revenue and pay the same to the person entitled thereto:
Provided that the controlling authority shall give an opportunity to the employer a reasonable opportunity of showing cause against the issue of such certificate: Provided further that the amount of interest payable shall, in no case, exceed the amount of gratuity.
Penalties [Sec. 9]
Sec. 9 imposes certain penalties for avoiding payment of gratuity, for giving false statements/representation. In such cases, up to six months’ imprisonment, or fine of Rs. 10000 or both can be imposed. If an employer contravenes or defaults any provision of the Act, rule or order made thereunder, then a minimum of 3 months’ and maximum of one year imprisonment or minimum fine of Rs. 10000 and maximum Rs. 20000 or both can be inflicted.
Again, if the offence relates to non-payment of gratuity under the Act, then the minimum of 6 months’ which may go up to two years’ imprisonment can be imposed, unless the Court for reasons recorded is of opinion that a lesser term of imprisonment or fine is sufficient to meet the ends of justice.
However, under Sec. 10, if the employer proves that somebody else was the actual offender and that the employer was innocent, then the court will give the employer exemption from liability.
Protection of Gratuity [Sec. 13]
Gratuity has been exempted from attachment in execution of any decree or order of any Civil, Revenue or criminal court. This relief is aimed at providing payment of gratuity to the person or persons entitled thereto without being affected by any order of attachment by any decree of any Court.
About Us
Corrida Legal is a boutique corporate & employment law firm serving as a strategic partner to businesses by helping them navigate transactions, fundraising-investor readiness, operational contracts, workforce management, data privacy, and disputes. The firm provides specialized and end-to-end corporate & employment law solutions, thereby eliminating the need for multiple law firm engagements. We are actively working on transactional drafting & advisory, operational & employment-related contracts, POSH, HR & data privacy-related compliances and audits, India-entry strategy & incorporation, statutory and labour law-related licenses, and registrations, and we defend our clients before all Indian courts to ensure seamless operations.
We keep our client’s future-ready by ensuring compliance with the upcoming Indian Labour codes on Wages, Industrial Relations, Social Security, Occupational Safety, Health, and Working Conditions – and the Digital Personal Data Protection Act, 2023. With offices across India including Gurgaon, Mumbai and Delhi coupled with global partnerships with international law firms in Dubai, Singapore, the United Kingdom, and the USA, we are the preferred law firm for India entry and international business setups. Reach out to us on LinkedIn or contact us at contact@corridalegal.com/+91-9211410147 in case you require any legal assistance. Visit our publications page for detailed articles on contemporary legal issues and updates.
Legal Consultation
In addition to our core corporate and employment law services, Corrida Legal also offers comprehensive legal consultation to individuals, startups, and established businesses. Our consultations are designed to provide practical, solution-oriented advice on complex legal issues, whether related to contracts, compliance, workforce matters, or disputes.
Through our Legal Consultation Services, clients can book dedicated sessions with our lawyers to address their specific concerns. We provide flexible consultation options, including virtual meetings, to ensure ease of access for businesses across India and abroad. This helps our clients make informed decisions, mitigate risks, and remain compliant with ever-evolving regulatory requirements.