PAYMENTS OF GRATUITY ACT 1972

INTRODUCTION

• Latin Word – Gratuitous

• Gratuity means a lump sum

payment made by an employer

as the retrial reward for his past

service when his employment is

terminated

OBJECTIVE

• The main purpose and concept of

gratuity is to help the workman

after the retirement, whether the

retirement is a result of the rules

of superannuation or physical

disability or impairment of the

vital part of the body.

APPLICABILITY

• It extends to the whole of India except J&K

• Every factory (as defined in Factories Act),

mine, oilfield, plantation, port and railway.

• Every shop or establishment to which Shops &

Establishment Act of a State applies in which 10

or more persons are employed at any time

during the year end.

• Any establishment employing 10 or more

persons as may be notified by the Central

Government.

• Once Act applies, it continues to apply even if

employment strength falls below 10.

EMPLOYEE MEANING

• Employee does not include- holds

post under central or state

government.

• Teacher cannot be called as

employee due to amendment of

this act.

An employee shall be said to be in continuous service

even his/her service in interrupted by way:

1. sickness,

2. accident,

3. leave,

4. absence from duty without leave,

5. leave with full wage,

6. temporary disablement,

7. laid-off period,

8. maternity leave : 26 weeks (THE PAYMENT OF

GRATUITY (AMENDMENT) ACT, 2018)

whether such uninterrupted or interrupted service was

rendered before or after the commencement of this Act.

SECTION 2A – CONTINUOUS SERVICE

In case of period of one year/6months

• 190/95 days employment under the

ground in mines, or in establishment

which works less than 6 days in a week.

• 240/120 days in case of other any

establishments.

SEC 3 – CONTROLLING AUTHORITY

The appropriate Government may, by

notification, appoint any officer to be a

controlling authority, who shall be

responsible for the administration of

this Act and different controlling

authorities may be appointed for

different areas.

SEC 4 – PAYMENT OF GRATUITY

Gratuity is payable when there is :-

• Continuous service of 5 yrs(not necessary

incase of death or disablement)

• Incase of death ,the amount shall be paid to

nominee or legal heir

• Time limit- Within 30 days of gratuity

becoming payable

• Maximum Amount-The gratuity payable to an

employee shall not exceed Rs. 20,00,000

SEC 4A - COMPULSORY INSURANCE

SEC 5 - POWER TO EXEMPT

• It is mandatory where number of employees is more

than 500;

• The registration shall be done in prescribed time & in

prescribed manner;

• The insurance shall be taken from LIC or any other

prescribed insurance company;

• However , employer of an establishment belonging to

or under the control of CG or SG are exempted from

the operations of sec.4A.

The government is having the

power to exempt the any

establishment, factory, mine,

oilfield, plantation, port, railway

company or shop are in receipt of

gratuity or pensionary benefits

not less favorable than the

benefits conferred under this

Act.

SEC 6 - NOMINATION

• Every employee, who has completed 1

yr of service , is compulsorily required to

make a nomination (Form F)

• The nomination must be made within 30

days

• The nomination must be made in favor of

one or more members of the family

• If at the time of making nomination, the

employee does not have family, the

nomination may be made in favor of any

person

• The employee may distribute the amount

of gratuity amongst more than one

nominee

SEC 7 - DETERMINATION OF

THE AMOUNT OF GRATUITY. [SEC 7]

• Any person who is eligible for payment of

gratuity should write an application to his

employer within certain time.

• When gratuity becomes payable and if no

application received from employee,

employer should give notice of payment

of gratuity to the employer and also to the

controlling authority specifying the

amount of gratuity so determined.

• The employer should arrange to pay the

amount of gratuity within 30 days from the

date it becomes payable to the person to

whom the gratuity is payable.

SEC 8 - RECOVERY OF GRATUITY

• If the employer fails to pay the gratuity

within the prescribed time (i.e., within 30

days of termination of employment) , the

controlling authority is empowered to issue

a certificate to the collector to recover the

amount of Gratuity.

• The employer shall also be liable to pay

Compound interest at such rate as may be

notified by CG from time to time.

• The interest shall be paid from the date of

expiry of the prescribed period& ending

with actual date of payment of Gratuity

• The interest payable shall not exceed the

amount of gratuity payable.

SEC 9 - PENALTIES

EXCEPTIONS

• Condition of working continuously for five years with an organisation is not applicable:

• his services are terminated due to his death or

• has become disabled due to an accident or a disease,

• An employer is mandated by law to pay gratuity to him or his nominee/legal heir, as the

case maybe, irrespective of the number of years of continuous service.

• In case the nominee of the employee is a minor, then the assistant labour commissioner

shall invest the money in his name in a term deposit with the State Bank of India or a

nationalised bank

RULES FOR PAYMENT

• An employer is required to specify the amount payable and mention the date of payment within 15 days of receipt

of application. The payment must be made within 30 days from the date of receipt of application.

• In such a case, the employer will accept the claim for payment of gratuity from the date such a witness or evidence

is furnished to the employer.

• An employee or nominee/ legal heir can complain to the controlling authority, i.e., the assistant labour

commissioner, in case of dispute under any of the following conditions: (Sec 11)

a) If the employer refuses to accept the application filed for the payment of gratuity;

b) If the amount of gratuity paid is less than what an employee feels should be paid;

c) If after receiving the application, the employer fails to specify the amount payable to the claimant and/or fails

to make the payable to the claimant and/or fails to make the payment within the specified time.

Any complaint must be filed with the assistant labour commissioner within 90 days from when the event occurred.

However, the commissioner can accept the complaint filed after 90 days if applicant can explain reason for the

delay.

.

CALCULATION OF GRATUITY

For employees covered under the Act

There is a formula using which the amount of gratuity payable is calculated. The formula is

based on the 15 days of last drawn salary for each completed year of service or part of thereof

in excess of six months.

The formula is as follows: (15 X last drawn salary X tenure of working) divided by 26

For employees not covered under the Act

There is no law that restricts an employer from paying gratuity to his employees even if the

organisation is not covered under the Act.

The amount of gratuity payable to the employee can be calculated based on half month's salary

for each completed year. Here also salary is inclusive of basic, dearness allowance, and

commission based on sales.

The formula is as follows: (15 X last drawn salary X tenure of working) divided by 30

EXAMPLES

Suppose A's last drawn basic pay is Rs 60,000 per month and he has worked with XYZ Ltd for 20

years and 7 months. In this case, using the formula above, gratuity will be calculated as:

(15 X 60,000 X 21)/26 = Rs. 7.26 lakh

In the above case, we have taken 21 years as tenure of service because A has worked for more than

6 months in year. Had he worked for 20 years and 5 months, 20 years of service would have been

taken into account while calculating the gratuity amount.

gratuity will be calculated as: (15 X 60,000 X 20) /30 = Rs 6 lakh

Here the number of years of service is taken on the basis of each completed year. So, since A has

worked with the company for 20 years and 7 months, his tenure will be taken as 20 and not 21.

FORFEITURE OF GRATUITY(SEC.10)

The full amount of gratuity can be forfeited if an

employee's services have been terminated due to:

a) His riotous or disorderly conduct or any other

violent act;

b) Committing an offence involving moral turpitude.

"No court decree or court order can attach the amount payable under the Gratuity

Act. This means that your gratuity will still be a payable to you even if your

employer goes bankrupt and no court order can put a stay on it."

WHETHER GRATUITY SHOULD BE PAID TO APPELLANT OR NOT ?

• Facts of the Case (Netram Sahu Vs. State of Chhattisgarh)

• The appellant was appointed as daily wager on 01.04.1986 by the Water Resources

Department of the State of Chhattisgarh and was attached to the office of SDO (E/M) Light

Machinery Tubewell & Gage Sub-Division Sakri, P.S. Charkarbhata, District Baster (CG).

• The services of the appellant were regularized on work charge establishment to the post

of Pump Operator by order dated 06.05.2008.

• After attaining the age of superannuation, the appellant retired on 30.07.2011.

• The appellant was, however, not paid the gratuity amount by the State which, according to

him, was payable to him after his retirement.

JUDGEMENT

• It was indeed the State who took 22 years to regularize the service of the appellant

and went on taking work from the appellant on payment of a meager salary of

Rs.2776/- per month for 22 long years uninterruptedly and only in the last three

years, the State started paying a salary of Rs.11,107/- per month to the appellant

• Having regularized the services of the appellant, the State had no justifiable reason to

deny the benefit of gratuity to the appellant which was his statutory right under the

Act

WHETHER GRATUITY TO BE PAID FOR THE STATED SIX YEARS OF SERVICE?

• Facts of the case (Kothari Industrial Corporation vs Appellate Authority)

• Sri Narasanna joined the petitioner's mill on 24-6-1960 and died while in service on 15-1-1987

• During this period in the years 1972, 1973, 1975, 1978, 1981 and 1982 he was absent without

obtaining leave for certain periods in each of those years

• The petitioner-management had imposed fine for such absence.

• It is thus alleged that the said Narsanna was not in continuous service for the purpose of

calculating gratuity under Section 2-A(1) of the Payment of Gratuity Act, 1972 (hereinafter

referred to as 'the Act'). It is urged that unless he had put in 240 days and actually worked for

that period with the employer, he would not be entitled to claim gratuity for that particular year

as per Section 2-A(2) of the Act.

• The petitioner, claims that the said Narsanna was entitled for gratuity for 21 years though his

total apparently was for 26 years 8 months and 26 days.

JUDGEMENT

• Section 2-A(1) as it stands now, if analysed properly shows that every service rendered by

the employee shall be continuous service for a period, even if there is interruption during

that period on account of (1) sickness, or (2) accident, or (3) leave, or (4) absence from

duty without leave except when there is break of service under orders passed as per the

Standing Orders, Rules or Regulations and/or (5) lay-off, strike or lock-out or cessation of

work not due to any fault of the employee concerned.

• Narasanna in the instant case was allegedly absent on few days without leave and though

was penalised by the employer, merely giving such punishment of imposition of fine does

not take away the case of the employees from the expression 'continuous service'. There

was obviously no order passed by the employer in accordance with the Standing Orders,

Rules or Regulations to the effect that the absence of the employees on those days or on

any of those days was to be treated as break in service.

WHETHER FORFEITURE OF GRATUITY IS AUTOMATIC ON DISMISSAL FROM SERVICE?

• Facts of the case(Union Bank of India vs. C.G. Ajay Babu)

• The respondent was an employee of the appellant-Bank. While serving as a Branch Manager,

disciplinary proceedings were initiated against him on the following charges:

• Failure to take all steps to ensure and protect the interest of the Bank.

• Failure to discharge his duties with utmost devotion, diligence, honesty and integrity.

• Doing acts unbecoming of an Officer Employee

• On the charges being duly established, the respondent was dismissed from service on

03.06.2004

• In the meanwhile, the respondent was issued a show-cause notice as to why the gratuity should

not be forfeited on account of proved misconduct involving moral turpitude. His explanation

was rejected and the gratuity was forfeited by order dated 20.04.2004

• There was no financial loss caused to the Bank

JUDGEMENT

• There is no conviction of the respondent for the misconduct which according to the

Bank is an offence involving moral turpitude. Hence, there is no justification for the

forfeiture of gratuity on the ground stated in the order dated 20.04.2004 that the

“misconduct proved against you amounts to acts involving moral turpitude”. At the

risk of redundancy, we may state that the requirement of the statute is not the proof of

misconduct of acts involving moral turpitude but the acts should constitute an offence

involving moral turpitude and such offence should be duly established in a court of

law.

WHETHER THE ORGANIZATION IS DEFINED AS AN ‘ESTABLISHMENT’ TO PAY GRATUITY?

Facts of the case(Regional Provident Fund Commissioner vs Regional Labour Commissioner - 29 June,

1984):

• The respondent was working as an Upper Division Clerk on the establishment of the Regional Provident

Fund Commissioner, Bangalore. After putting in about 9 years and 9 months of service commencing

from 20th June, 1972, he resigned from service with effect from 3rd March, 1982. Thereafter on 14th June,

1982, he made an application before the Assistant Labour Commissioner (Central) under the provisions

of the Act praying for the issue of a direction to the petitioner to pay gratuity calculated at the rates

prescribed under the Act. That application was allowed by the Assistant Labour Commissioner

(Central) by his order.

• The petitioner preferred an appeal before the appellate authority functioning under the Act; appeal was

dismissed. Aggrieved by the said order, the petitioner has presented this writ petition to the Regional

Labour Commissioner.

• ( This writ petition is by the Regional Provident Fund Commissioner, Bangalore, praying for quashing

the order of the Assistant Labour Commissioner (Central) allowing the application of the respondent

for payment of gratuity under the Payment of Gratuity Act which order has been confirmed by the

appellate authority functioning under the Act. )

• The petitioner, contended that the provisions of the Act were not applicable to the

petitioner, and submitted as follows :

The Provident Fund Organisation was a trust constituted under the provisions of the

Employees' Provident Fund (Staff and Conditions of Service) Regulations Act, 1962 by

the Central Government. Therefore it is an instrumentality of the Central Government. It has

got its own rules regulating the conditions of service of its employees. Any claim for

gratuity or other terminal benefits would be made and paid only under the regulations

regulating the conditions of service and therefore the provisions of the payment of Gratuity

Act, 1972 are not applicable.

JUDGEMENT

• Writ Petition was dismissed.

• Two things were clear :

• The Act applies to every establishment within the meaning of any law

• There is no dispute that more than ten persons are employed on the establishment of the

Provident Fund

In this State, inter alia, the three relevant laws which are in force are (i) Karnataka Shops

and Establishments Act, (ii) Payment of Wages Act, and (iii) Contract Labour Act.

The term 'establishment' is defined in the Contract Labour (Regulation and Abolition)

Act, 1970.

WHETHER INTEREST ON ACCOUNT OF DELAYED GRATUITY PAYMENT SHOULD BE PAID OR NOT?

• Facts of the case (Bimalendu Kumar Chatterjee Vs. Regional Labour Commissioner (Central))

• The petitioner was a permanent employee of the respondent BCCL and after completing 33 years 05 months in service,

he retired on 28.02.2005 from the post of Accounts Assistant while posted in the Central Hospital, Dhanbad

• The petitioner was expecting payment of his gratuity amount along with his retiral dues, but the same was not paid

promptly and after a lapse of more than nine months from the date of his retirement, on 1.12.2005 he was given two

cheques amounting to Rs. 2,89,808/-, though the cheques were drawn in the month of July 2005 and November 2005

respectively

• About seven months thereafter, on 4.7.2006, a further sum of Rs. 10,404/- being the balance amount of gratuity, was paid

to him.

• Being aggrieved by the delay of more than sixteen months from the date of his superannuation, the petitioner demanded

interest payable on the gratuity amount from his employer. Finding no response to his demand, the petitioner filed an

application under section 7(2) of Payment of Gratuity Act, 1972

• In the aforesaid proceeding, the respondent employer had filed a written statement, denying the petitioner's claim on the

ground that though, payment of the gratuity amount was delayed, but such delay was not on account of the employer.

Rather, it was on account of the petitioner's failure to produce "No Dues Certificate".

• The petitioner was continuing to remain in occupation of the employer's quarter

• he had paid penal rent for the occupation of the quarter.

JUDGEMENT

• Provision of section 7 of the Act does not stipulate that the payment of gratuity can be withheld by the employer

if the retired employee continues to remain in occupation of the employer's quarter.

• Gratuity amount shall be released to the employee in accordance with the provisions of Payment of Gratuity

Act and the employer can at best retain a sum of Rs. 50,000/- out of non-statutory dues payable to the

employees and if such non-statutory dues are not sufficient enough to employee's credit, the gratuity amount

payable to the employee concerned shall have to be deposited with the Controlling Authority under payment

of Gratuity Act, 1972, after retaining total non-statutory dues.

• Furthermore, even though, the petitioner had continued to occupy the company's quarter after his retirement,

but as per Rules of his employer, he had paid penal rent for the occupation of the quarter.

• BCCL is directed to pay interest, as specified under section 7(3)(3-A) of the Payment of Gratuity Act,

1972, on the amount of 2,89,808/- calculated from the date when the amount was payable and till the

date of final payment, made to the petitioner

WHETHER THE COMPANY CAN WITHOLD THE GRATUITY ?

Facts of the case(Travancore Plywood Industries vs Regional Joint Labour Organisation):

• The respondent was an employee of the petitione(Travancore Plywood Industries). He

retired on superannuation on June 19, 1984. Since the petitioner refused to pay gratuity

amount due to the respondent he approached the Controlling Authority under

the Payment of Gratuity Act, 1972; Where the petitioner was directed to pay the gratuity

amount.

• The petitioner contended that respondent is entitled to get the gratuity amount only on final

settlement of his account- What is treated by the petitioner - as failure to settle the account

by the respondent is the latter's failure to surrender possession of an extent of 30 cent of

land which according to the petitioner - belongs to them and has been given to the

respondent under a licence and he is bound to surrender the same as and when directed to

do so by the petitioner.

JUDGEMENT

• Under the Payment of Gratuity Act, the employer is entitled to withhold the gratuity of

an employee only if the termination of the employee is under Section 4(6) of the Act.

Here the employer has no case that the employer has terminated the service of the

employee on any of the grounds mentioned in Section 4(6) of the Act.

• The petitioner-company therefore, is not entitled to withhold the gratuity on the pretext

that the third respondent is in occupation of the land belonging to the company.

THANK YOU