Payment of Gratuity Act, 1972

- Prof. Arjit Pandey

This Act is a piece of social welfare legislation and deals with payment of gratuity which is a kind of retiral benefit like pension,
provident fund etc. The Act accepts in principle, compulsory payment of gratuity as a social security measure to wage earning
population in industries, factories and establishments.

The main purpose and concept of gratuity is to help the workman after retirement, whether retirement is a result of rules of
superannuation or physical disablement or impairment of vital part of the body.

The expression gratuity under the Act, suggests that it is a gratuitous payment given to an employee on discharge, superannuation or
death. It is a kind of financial assistance to tide over post retiral hardships and inconveniences.
Delhi Cloth and General Mill Co. Ltd. V. The Workmen and Others (1969), it was held by the Supreme Court that
payment of gratuity means a gift specially for services rendered or returned for favour received. The object is to provide
a retiral benefit to workmen who have rendered long and unblemished service to the employer and thereby contributed
to the prosperity of the employer.

State of Kerala v. Padmanabhan Nair (1985), it was held that pension and gratuity are no longer any bounty to be
distributed by the government to the employees on their retirement but have become under the decisions of this court,
valuable rights and property in their hands and culpable delay in settlement must be visited with the penalty of payment
of interest at the current market rate till actual payment. Gratuity is no longer in the realm of charity but a statutory
right given to the employee.
 DEFINITIONS (Sec. 2)
(b) "completed year of service" means continuous service for one year.

(d) “controlling authority” means an authority appointed by the appropriate government under section 3.

In Allahabad Bank v. All India Allahabad Bank Retired Employees Association (2010), it was observed that Controlling
Authority is made responsible for the administration of the Act and it further provides for appointment of
authorities for different areas as defined under section 3.

(f) "employer" means, in relation to any establishment, factory, mine, oilfield, plantation, port, railway company or
shop –

(i) a person or authority appointed by the appropriate Government for the supervision and control of employees
under the control of Central government or State government
(ii) a person or authority appointed by the appropriate authority for supervision and control of employees under
the control of local authority/ local government
(iii) Any manager or officer who has the ultimate control over the affairs of the establishment, factory, mine, oilfield,
plantation, port, railway company or shop.
(h) "family", in relation to an employee, shall be deemed to consist of - (i) in the case of a male employee, himself, his
wife, his children, whether married or unmarried, his dependent parents and the dependent parents of his wife and
the widow and children of his predeceased son, if any,

(ii) in the case of a female employee, herself, her husband, her children, whether married or unmarried, her dependent
parents and the dependent parents of her husband and the widow and children of her predeceased son, if any.
(q) "retirement" means termination of the service of an employee otherwise than on superannuation.

(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 at the age on the attainment of which the employee shall vacate the
employment.

(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 includes
dearness allowance but does not include any bonus, commission, house rent allowance, overtime wages and any
other allowance.

Tricycle of India v. M.K. Gurumani & Others (2001), the Supreme Court made a comparison between the term
‘wages’ used in Payment of Gratuity Act and EPF Act respectively and further observed that under the Payment of
Gratuity Act, the term wages includes dearness allowance too.
(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, semi-skilled, 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 Government or a State Government and is governed by any other Act or by any rules providing for
payment of gratuity.

Teachers working in educational institutions are not employees within the meaning of this Act and thus are not entitled
to benefits of gratuity under the Act.
In Ahmedabad Pvt. Primary Teachers’ Assn. v. Administrative Officer & Ors. (2004), Court rejected the claim
of teachers for payment of gratuity under the Act and even decided that the teachers as a class do not fall
within the definition of employee under the Act.

After series of judgements, finally in Rajasthan Welfare Society v. State of Rajasthan (2005), the Supreme
Court held that definition of employee under the Act includes teachers and every other employee working
in a recognized institution.
 Other Provisions
Section 4. Payment of Gratuity:

(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, -
(a) on his superannuation, or
(b) on his retirement or resignation, or
(c) on his death or disablement due to accident or disease:
Provided that the completion of continuous service of five years shall not be necessary where the termination of the
employment of any employee is due to death or disablement:

Provided further that in the case of death of the employee, gratuity payable to him shall be paid to his nominee or, 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.]

Explanation. : For the purposes of this section, disablement means such disablement as incapacitates an employee for
the work which he, was capable of performing before the accident or disease resulting in such disablement.
(2) 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 fifteen days wages based on the rate of wages last drawn by the employee concerned:

Provided that in the case of a piece-rated employee, 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 this
purpose, the wages paid for any overtime work shall not be taken into account.:

Provided further that in the case of [an employee who is employed in a seasonal establishment and who is riot so
employed throughout the year], the employer shall pay the gratuity at the rate of seven days wages for each season.
Explanation: In the case of a monthly rated employee, the fifteen 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.

(3) The amount of gratuity payable to an employee shall not exceed three lakhs and fifty thousand] rupees.

(4) For the purpose of computing the gratuity payable to an employee who is employed, after his disablement, on
reduced wages, his wages for the period preceding his disablement shall be taken to be the wages received by him during
that period, and his wages for the period subsequent to his disablement shall be taken to be the wages as so reduced.

(5) Nothing in this section shall affect the right of an employee to receive better terms of gratuity under any award or
agreement or contract with the employer.
(6) Notwithstanding anything contained in sub-section (1), -

(a) 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, shall be forfeited to the extent of the
damage or loss so caused.

(b) the gratuity payable to an employee may be wholly or partially forfeited] –

(i) if the services of such employee have been terminated for his riotous or disorderly conduct or any other act of
violence on his part, or

(ii) if the services of such employee have been terminated for any act which constitutes an offence involving moral
turpitude, provided that such offence is committed by him in the course of his employment.
Section: 7 Determination of the amount of gratuity

(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 sub-section (1) 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 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.

(3A) 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 not 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.

(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, may, after giving the parties to the appeal
a reasonable opportunity of being heard, confirm, modify or reverse the decision of the controlling authority.
Section: 8 Recovery of gratuity.

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.
Section: 9 Penalties.

(1) Whoever, for the purpose of avoiding any payment to be made by himself under this Act or of enabling any
other person to avoid such payment, knowingly makes or causes to be made any false statement or false
representation shall be punishable with imprisonment for a term which may extend to six months, or with fine
which may extend to ten thousand rupees or with both.

(2) An employer who contravenes, or makes default in complying with, any of the provisions of this Act or any rule
or order made there under shall be punishable with imprisonment for a term which shall not be less than three
months but which may extend to one year, or with fine which shall not be less than ten thousand rupees but which
may extend to twenty thousand rupees, or with both:

Provided that where the offence relates to non-payment of any gratuity payable under this Act, the employer shall
be punishable with imprisonment for a term which shall not be less than Six months but which may extend to two
years unless the court trying the offence, for reasons to be recorded by it in writing, is of opinion that a lesser term
of imprisonment or the imposition of fine would meet the ends of justice.
Section: 10 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 punishment as if he were the
employer and the employer shall be discharged from any liability under this Act in respect of such offence.