Payment of Gratuity Act

Payment of Gratuity Act 1 History

Working Journalists and Conditions of Service Act, 1971

 provided

for payment of gratuity

 but only for a certain workmen. In 1971, govt. of Kerela enacted ena cted act for payment pa yment of gratuity for workers but for very limited categories workmen. West Bengal Payment of Gratuity Act 1971 same as above. After 1971, several states also started enacting acts on similar lines, thus, need for central legislation. Accordingly, in August 1971 conference by labour ministry discussing such an act  October, consensus achieved. Bill came in i n 1971 and then act in 1972

 similar

to west

Bengal act. Social security legislation. Before the act, gratuity was actuall y paid by employers to express gratitude. Difference between bonus and gratuity: Bonus is reward while gratuity is like a retiring  benefit. Bonus may be based on performance of company. Bonus can be paid often but gratuity is only paid at the end of your service. Difference between pension and gratuity: Pension you withdraw monthly whereas gratuity is a one-time payment in lump sum. Difference between provident fund and gratuity: Gratuity is received as the employer is grateful for the work done whereas provident fund is contributed as a part of your wages. Difference between retrenchment benefit and gratuity: Retrenchment benefit is like a compensation for premature termination of employment. 1. Army & Navy Stores, Bombay v. Their Workmen [1951 SC] In case there is death or any physical/mental disability rendering them incapable of service, half a month’s salary for each year of service rendered. In case of voluntary retirement or resignation after 15 years



half a month’s salary for each year of continuous salary. Same

also applied for termination of service. However, those dismissed for misconduct were not covered. This model for gratuity scheme was followed for subsequent disputes.

1

 Section 4, 6 and 7 are most important.

2. Bharat Khand Textile Manufacturing Co. v. Textile Labour Association, Ahemdabad [1960 SC] Financial capacity of employer must be kept in mind while deciding gratuity scheme. Further,  profit making capacity, extent of his reserves, chances of replenishing those reserves, capital that has been invested must also be considered. 3. Indian Oxygen & Acetylene Co. Employees Union v. Indian Oxygen Acetylene Co. [1956 SC] If there is an employer co. that has the financial capacity, then the workmen would be entitled to some form of gratuity along with provident fund. When you look at financial capacity, look at general financial stability which includes profit earning capacity etc. 4. Wanger & Co. v. their workmen [1956 SC] Reiterated what has been said in the above cases and when there is payment of gratuity in case of resignation, he should only get gratuity if he has completed 10 years. In case of termination, then minimum of 5 years of continuous service. Section 1

Even if number of people falls below 10, the act continues to apply. 5. State of Kerala & Ors. V. Padmanabhan [1985] 6. State of Punjab v. Labour Court, Jalandhar [1980 SC] 7. Akbar Hussain v. Appellate Authority for payment of gratuity, Ahemdabad [1979 Guj. HC] Case concerned a seasonal factory (sugar manufacturing). Ques.

  Whether

all employees

working in seasonal factory are covered by the PoG Act and if yes, are they only entitled to 7 days of wages? There were some employees who worked throughout the year and some were seasonal. The standing orders had classified the workers and specified who were permanent and who were seasonal. A sugar factory does come within the purview of Section 1(3)(a) as it is a factory. The employee in question was a permanent employee of a season factory. Therefore, must be entitled to full 15 days wages for every year of complete d service.

Section 2

2(a), 2A, 2(c) 8. Ahemdabad Private Primary Association v. Administrative Officers & Ors. [2004 ] 2 Having thus compared the various definition clauses of word 'employee' in different enactments, with due regard to the different aims and objects of the various labour legislations, we are of the view that even on plain construction of the words and expression used in definition clause 2(e) of the Act, 'teachers' who are mainly employed for imparting education are not intended to be covered for extending gratuity benefits under the Act. Teachers do not answer description of being employees who are 'skilled', 'semi-skilled' or 'unskilled'. These three words used in association with each other intend to convey that a  person who is 'unskilled' is one who is not 'skilled' and a person who is 'semi-skilled' may be one who falls between two categories meaning he is neither fully skilled nor unskilled. Our conclusion should not be misunderstood that teachers although engaged in very noble  profession of educating our young generation should not be given any gratuity benefit. There are already in several States separate statutes, rules and regulations granting gratuity benefits to teachers in educational institutions which are more or less beneficial than the gratuity  benefits provided under the Act. It is for the Legislature to take cognizance of situation of such teachers in various establishments where gratuity benefits are not available and think of a separate legislation for them in this regard. That is the subject matter solely of the Legislature to consider and decide. [This judgment has now become stale due to the change in definition of em ployees post 2009, see email conversation with Varsha dated 17 April 2018]. 9. Fibre Foam Pvt. Ltd. v. Kannan Nair [1979 Ker] How relevant? Superannuation (section 2(r)) 10. Kashinath Sahoo v. Orissa State Electricty Board [1977 Orissa] https://www.legalcrystal.com/case/528929/kashinath-sahoo-vs-orissa-state-electricity-board 11.9.

2

Ti Cycles of India, Amattur v. Gurumani [2001 SC]

https://indiankanoon.org/doc/494100/

Whether incentive payment falls within “wages”? Court held no. The incentives given to the labour by their employers for achieving higher productivity, are generally known as incentive bonus or production bonus. In other words the incentive for increased production is generally known as production bonus. It is made clear in the scheme in the present case that each payment will be made not on the basis of pieces of  per man-day nor is it a piece rate work for which wages are paid but it is an additional incentive for payment of bonus in respect of extra work done. The measure of extra work done is indicated by pieces and not wages as such that are paid on that basis. It is not that in respect of each piece any wages are paid but altogether if certain number of pieces are  produced, additional incentive will be payable at a particular rate. Both the High Court and the authorities have incorrectly understood the position in law and have wrongly held that the concept of wages under the Act would include bonus. Section 4:

12. Western Coal Fields Ltd. v. Harbans Lal Vaid (MP HC, 1979) Termination of employment He was employed in private capacity. His service was transferred to WCFL. He claimed gratuity. It was held that gratuity cannot be sustained as there was no termination by his  previous employer but only post transfer. The employee had reached the age of 58 before the transfer but since there was no termination, the age did not matter. PoG does not arise where no emplo yer –  employee.

The learned Counsel for the petitioner submitted that the claim for payment of gratuity relates to past services and as the respondent was in service of the owner of the coal mine  before nationalisation, the gratuity for that particular period can be recoverable only from the owner and not from the Central Government or the petitioner. In our opinion, there is no merit in this contention. Section 4 of the Gratuity Act, to which reference has already  been made, provides for payment of gratuity to an employee "on the termination of his employment". There is no entitlement for gratuity until the employment is terminated even if a person attains the age of superannuation. It is true that the respondent had crossed the age of 58 years before nationalisation; yet his services were continued by the

owner of the coal mine and thereafter by the Central Government. As there was no termination of his employment before nationalisation, there was no entitlement for gratuity before the appointed day. The entitlement for gratuity arose on the date the respondent's services were terminated by the gratuity and other retirement benefits to the respondent. 13.10.

Bakshish Singh v. Darshan Engineering Works [1994 SC] (Justice PB Sawant)

Gratuity that is paid, differs from industry to industry and there is no fixed sum that an employer has to pay. Amount depends on the financial capacity of the employer. This section does not violate Article 14 and 19 of the Constitution.

On the employee's resignation w.e.f. December 10, 1978 which was accepted by the respondent-employer, he claimed gratuity under Section 4(1)(b) of the Act. His claim not having been accepted, he approached the Controlling Authority under  Section 7of the Act. The claim was resisted by the employer on the ground firstly that the employee was entitled to gratuity only till the date he reached his superannuation age which was 58 years and since he had not completed 5 years of service by the time he attained 58 years of age, he was not entitled to gratuity under  Section 4(1) of the Act. Secondly, it was contended that in any case the amount of gratuity payable to the employee was only for the period upto the superannuation age and since he was drawing wages of Rs 230 per month on the day he attained the superannuation age, he was entitled to a sum of Rs 460 only, being the gratuity calculated at the rate of 15 days' salary per year of service till the date of superannuation. The P&H High Court had held that the provisions of  Section 4(1)(b) of the Act which entitles an employee to gratuity on his retirement or resignation after a continuous service of only 5 years was an unreasonable restriction on the employer to carry on his business and, therefore, violative of Article 19(1)(g) of the Constitution. Held  –   On both grounds, therefore, viz. that the provisions for payment of gratuity contained in Section 4(1)(b) of the Act are one of the minimal service conditions which must be made available to the employees notwithstanding the financial capacity of the employer to bear its burden and that the said provisions are a reasonable restriction on the right of the employer to carry on his business within the meaning of  Article 19(6) of the

Constitution, the said provisions are both sustainable and valid. Hence the decision of the High Court has to be set aside. 14.11.

Akbar Hussain v. Appellate Authority, Ahmedabad (1979) LAB IC 366 (Guj)

Petitioner’s service came to an end. He had completed a continuous service of 14 years in a sugar factory. He was paid only 7 days of wages for each completed year instead of 15 days rule. HC question –   whether all employees in a seasonal factory were to be governed by the Act? HC set aside appellate authority’s decision and allowed him 15 days wage. Grounds given:1. There are some employees in a sugar factory who work permanently but there are others who come only for consequential processes. Even in a seasonal factory there could be temporary and seasonal employees. 2. Standing orders of factory had already mentioned who could be what. Thus, distinction  between permanent and seasonal employee was clear. 3. Sugar factory would come under the definition of factory under Factories Act thus it would come under the purview of S. 1(3-A) of the Act. As employee was permanent in the sugar factory, he was allowed 15 days. 15.12.

DV Kapoor v. UOI [1990 SC]

Gratuity is a statutory right and it cannot be withheld after retirement as a measure of  punishment. Appellant working at Indian High Commission London in IFS. Transferred to MEA, New Delhi but did not join services. Disciplinary proceedings initiated against him but he said his wife was ill and in London hence he could not join in time. In between disciplinary  proceedings he sought voluntary retirement. The President in consultation with the UPSC decided that the voluntary retirement be granted but the entire gratuity and pension otherwise admissible to the appellant be withheld on permanent basis as a measure of punishment. When the appellant challenged the legality thereof, the High Court dismissed the writ petition in limine on the ground that it would not interfere in its discretionary jurisdiction under Art. 226 of the Constitution.

Appeal before SC under Art. 136. HELD: Rule 9 of the rules empowers the President only to with- hold or withdraw pension permanently or for a specified period in whole or in part or to order recovery of pecuniary loss caused to the State in whole or in part subject to minimum. The employee's right to pension is a statutory fight. The measure of deprivation therefore, must be correlative to or commensurate with the gravity of the grave misconduct or irregularity as it offends the right to assistance at the evening of his life as assured under Art. 41 of the Constitution. The impugned order discloses that the President withheld on  permanent basis the payment of gratuity in addition to pension. The fight to gratuity is also a statutory right. The appellant was not charged with nor was given an opportunity that his gratuity would be withheld as a measure of punishment. No provision of law has been  brought to our notice under which, the President is empowered to withhold gratuity as well, after his retirement as a measure of punishment. Therefore, the order to withhold the gratuity as a measure of penalty is obviously illegal and is devoid of jurisdiction. In view of the above facts and law that there is no finding that appellant did commit grave misconduct as charged for, the exercise of the power is clearly illegal and in excess of  jurisdiction as the condition precedent, grave misconduct was not proved. Accordingly the appeal is allowed.