payment of gratuity act.docx
TRANSCRIPT
-
8/14/2019 PAYMENT OF GRATUITY ACT.docx
1/39
1| P a g e
INDUSTRIAL LAWS AND SOCIAL SECURITY LEGISLATIONS
PAYMENT OF GRATUITY ACT
An Act to provide for a Scheme for the payment of gratuity to
employees engaged in factories, mines, oilfields, plantations,
ports, railway companies, shops or other establishments and
for matters connected therewith or incidental thereto
Submitted by: SMRITI SAHNI
CORPORATE LAW AND GOVERNANCE
LLM 1ST YEAR
ROLL NO. 36
Submitted to: Dr. Gade Mallikarjun
-
8/14/2019 PAYMENT OF GRATUITY ACT.docx
2/39
2| P a g e
ACKNOWLEDGEMENT
I would like to express my appreciation and gratitude to various people who
have shared their valuable time and made possible this project, through their
direct and indirect cooperation.
I am highly grateful to my honourable professor Dr. Mallikarjun for allowing
me to work on this project and provide necessary help.
I thank my respected faculties, dear friends and colleagues, who help me in
every possible ways, support me and encourage me to explore new dimensions.
-
8/14/2019 PAYMENT OF GRATUITY ACT.docx
3/39
3| P a g e
RESEARCH METHODOLOGY
This project is based mainly and heavily on written text material and also on the
web source. It is based on the doctrinal method of research.
The researcher also expresses his thoughts regarding the secondary sources. The
segments are structured and written actively. The writing style is descriptive as
well as analytical. This project has been done after a thorough research based
upon intrinsic and extrinsic aspect of the assigned topic.
HYPOTHESIS
Gratuity is a gratuitous payment given to an employee after his superannuation
or retirement. It is necessary to understand the conditions governing and the
intended benefits that the Gratuity Act seeks to provide. The main idea behind
this research is to understand the provisions under the Gratuity Act and
focussing mainly on what constitutes continuous service under the said Act.
-
8/14/2019 PAYMENT OF GRATUITY ACT.docx
4/39
4| P a g e
TABLE OF CONTENTS
Chapter Particulars Page No.1. Introduction- Object 5
2. Overview of the Act 7
3. Scope and Applicability 8
4. Definitions 11
5. Concept of Continuous Service 13
6. Other Provisions 23
7. Amendments 308. Conclusion 38
9. Bibliography 39
-
8/14/2019 PAYMENT OF GRATUITY ACT.docx
5/39
5| P a g e
CHAPTER 1
INTRODUCTION- OBJECT
Gratuity paid to workmen is intended to help them after retirement whether the
retirement is a result of rules of superannuation or physical disability. The
general principle is that by their length of service workmen are entitled to claim
a certain amount as retiral benefit.
Object of gratuity is to help the workmen for retirement gratuity is a gratuitous
payment given to employee on discharge or death.
Gratuity as the name itself suggests is a gratuitous payment given to an
employee. The Act is not intended to do away with other retiral benefits already
existing and available to the employees. In bringing the Act, the legislature
clearly intended to confer extra benefits on the employees. The Court, while
construing the provisions of the Act, which is a piece of social legislation, must
construe them as to help in achieving the object of the legislation. The retiral
benefits which stood conferred already on the employees did not militate
against the benefit of gratuity. The endeavour must be to see that the retiral
benefits schemes already existing and scheme of gratuity under the Act co-exist
in a concern.
The issue of settlements between employees and employers regarding paymentof gratuity before the Act came into force was discussed by the Madras High
Court in Kuppuswami v. EID Parry (India) Ltd. Remipet,1where in the Court
held that before 16thSeptember, 1972, when the Act came into force, the term
denying gratuity to post 1947 employees and the term regarding option giving
up gratuity and taking pension in lieu thereof, were certainly workable and no
exception could be taken to them in law. These arrangements or bargains struck
11989 (1) LLN 85 (Mad.)
-
8/14/2019 PAYMENT OF GRATUITY ACT.docx
6/39
6| P a g e
inter se the parties in the concern could survive only until the Act came into
force. After the Act came into force, there could be no denial of gratuity to any
particular category of employees and in particular post 1947 employees, despite
their coming within the ambit of the Act. Prior to the Act, by opting for and
accepting pension, the pre-1947 employees could have foregone gratuity. But,
the Act brought about a drastic change providing for a uniform scheme for the
payment of gratuity in all the concerns covered under the Act.
With regard to pre 1947 employees, the question that arises for consideration is,
if they opt for pension, should they lose gratuity? Though this question did not
strictly arise for consideration by the Court, yet the Court pointed out that
provisions of the Act have an overriding effect on the question of gratuity and
implications of Section 142of the Act cannot be lost sight of.
2
Act to override other enactments, etc- -The provisions of this Act or any rule made thereunder shall haveeffect notwithstanding anything inconsistent therewith contained in any enactment other than this Act or in
any instrument or contract having effect by virtue of any enactment other than this Act.
-
8/14/2019 PAYMENT OF GRATUITY ACT.docx
7/39
7| P a g e
CHAPTER 2
OVERVIEW OF THE ACT
Preamble
SECTION PROVISIONS
1 Short title, Extent, Application and Commencement
2 Definitions
2A Continuous Service
3 Controlling Authority
4 Payment of gratuity4A Compulsory insurance
5 Power to exempt
6 omination
7 Determination of the amount of the Gratuity
7A Inspectors
7B Powers of Inspectors
8 Recovery of Gratuity
9 Penalties10 Exemption of employer from liability in certain cases
11 Cognizance of Offences
12 Protection of action taken in good faith
13 Protection of Gratuity
14 Act to override other Enactments etc.
15 Power to make Rules
http://www.vakilno1.com/bareacts/paymentgratuity/preamble.htmhttp://www.vakilno1.com/bareacts/paymentgratuity/s7b.htmhttp://www.vakilno1.com/bareacts/paymentgratuity/s7b.htmhttp://www.vakilno1.com/bareacts/paymentgratuity/s7b.htmhttp://www.vakilno1.com/bareacts/paymentgratuity/preamble.htm -
8/14/2019 PAYMENT OF GRATUITY ACT.docx
8/39
8| P a g e
CHAPTER 3
SCOPE AND APPLICABILITY OF THE ACT
1. SHORT TITLE, EXTENT, APPLICATION AND COMMENCEMENT. -
(1) This Act may be called the Payment of Gratuity Act, 1972.
(2) It extends to the whole of India : Provided that in so far as it relates to plantations or
ports, it shall not extend to the State of Jammu and Kashmir.
(3) It shall apply to -
(a) every factory, mine, oilfield, plantation, port and railway company;
(b) every shop or establishment within the meaning of any law for the time being in force in
relation to shops and establishments in a State, in which ten or more persons are employed,
or were employed, on any day of the preceding twelve months;
(c) such other establishments or class of establishments, in which ten or more employees are
employed, or were employed, on any day of the preceding twelve months, as the Central
Government may, by notification, specify in this behalf.
(3A) A shop or establishment to which this Act has become applicable shall continue to be
governed by this Act notwithstanding that the number of persons employed therein at anytime after it has become so applicable falls below ten.
(4) It shall come into force on such date as the Central Government may, by notification,
appoint.
SCOPE OF THE ACT
The scope of the term establishment under the Act was discussed at length by
the Madras High Court in the case of M.S.N. Sundaram Pillai & Co. v. R.
Dhastagree,3where the Court discussed various case laws as well as the Tamil
Nadu Shops and Establishments Act, 1947, which provides for the regulation of
workers in the shops, commercial establishments, restaurants, theatres and other
establishments and for other allied purposes. Sub-section (6) of Section 2 of the
Tamil Nadu Shops and Establishments Act defines establishments to mean a
31995 (70) FLR 266 (Mad.)
-
8/14/2019 PAYMENT OF GRATUITY ACT.docx
9/39
9| P a g e
shop, commercial establishment, restaurant, eating house, resident hotel, theatre
or any place of public amusement or entertainment and include such
establishment as the State Government may by notification declare to be an
establishment for the purpose of this Act.
In State of Punjab v. Labour Court, Jullunder,4 the scope and applicability of
the provisions of the Gratuity Act with particular reference to Section 1(3) came
up for consideration. While analysing the scope and purport of the Gratuity Act,
it was held that the Payment of Gratuity Act enacts a complete Code containing
the essential conditions for the payment of gratuity and that it creates a right to
payment of gratuity and also indicates when the right will accrue and lays down
the principles for quantification of the gratuity apart from providing for the
recovery of amount making special provisions for payment of compound
interest for delayed payments. It was also held that Parliament intended that the
proceedings for payment of gratuity due under the Gratuity Act must be taken
under that Act and not under any other Act.
APPLICABILITY
The Act of 1972 is a piece of social welfare legislation enacted with the view to
lay down a uniform pattern of payment of gratuity to different categories of
employees who are employed in shops and establishments. While interpreting
the provisions of the Act, the Court has to bear in mind that welfare legislation
must receive liberal construction keeping in view the purpose of the legislation.
Therefore, if more than one interpretation can be given to expression any law
for the time-being in force in relation to shops and establishments in a State,
then the one which advances the object of the legislation will be preferred as
against an interpretation which would wholly or partially defeat the legislative
intendment. The Court will also refrain from interpreting a beneficent Statute
41979 (39) FLR 353
-
8/14/2019 PAYMENT OF GRATUITY ACT.docx
10/39
10| P a g e
like the Act of 1972 in such a manner which may curtail its wide amplitude and
result in denial of benefit of gratuity to a class of employees unless it becomes a
compelling necessity.5
The Act is a piece of social welfare legislation and deals with the payment of
gratuity which is kind of retiral benefit like pension, provident fund etc. As has
been explained, gratuity in its etymological sense is a gift, especially for
services rendered, or returns for favours received. It has now been universally
recognised that all persons in society need protection against loss of income due
to unemployment arising out of incapacity to work due to invalidity, old age etc.
For the wage earning population, security of income, when the worker becomes
old or infirm, is of consequential importance. The provisions contained in the
Act are in the nature of social security measures like employment insurance,
provident fund and pension. The Act accepts, in principle, compulsory payment
of gratuity as a social security measure to wage earning population in industries,
factories and establishments.
Thus, the main purpose and concept of gratuity is to help the workman after
retirement, whether, retirement is a result of superannuation, or physical
disablement or impairment of vital part of the body. The expression, gratuity
itself suggests that it is a gratuitous payment given to an employee on discharge,
superannuation or death. Gratuity is an amount paid unconnected with any
consideration and not resisting upon it, and has to be considered as something
given freely, voluntarily or without recompense. It is sort of financial assistance
to tide over post-retiral hardships and inconveniences.
5Municipal Committee, Thanesar, Distt.Kurukshetra v. A.Nathi Ram, 1998 (3) LLJ (Supp.) 1230 at p.1234
-
8/14/2019 PAYMENT OF GRATUITY ACT.docx
11/39
11| P a g e
CHAPTER 4
DEFINITIONS
WHO IS AN EMPLOYEE?
According to Section 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, 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. The wage ceiling of `3500 which was earlier in the Act
has been removed. With the removal of ceiling on wage every employee will
be eligible for gratuity, irrespective of his wage level w.e.f. 24th
May, 1994.
Teacher was held to be not an employee (LAB 1C Pat 365) under the Act.
The teachers are clearly not intended to be covered by the definition of
employee. [ Ahmedabad pvt. Primary Teachers Association v.
Administrative Officer, LLJ (2004) SC]
OTHER IMPORTANT DEFINITIONS
APPROPRIATE GOVERNMENT
Section 2(a) appropriate Government means, -
(i) in relation to an establishment -
(a) belonging to, or under the control of, the Central Government,
(b) having branches in more than one State,
(c) of a factory belonging to, or under the control of, the Central Government,
(d) of a major port, mine, oilfield or railway company, the Central Government,
(ii) in any other case, the State Government;
It may be noted that many large establishments have branches in more than one
State. In such cases the appropriate government is the Central Government
-
8/14/2019 PAYMENT OF GRATUITY ACT.docx
12/39
12| P a g e
and any dispute connected with the payment of gratuity falls within the
jurisdiction of the controlling authority and the appellate Authortiy
appointed by the Central Government under Section 3 and 7.
FAMILY
(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 herhusband and the widow and children of her predeceased son, if any :
Explanation : Where the personal law of an employee permits the adoption by
him of a child, any child lawfully adopted by him shall be deemed to be
included in his family, and where a child of an employee has been adopted by
another person and such adoption is, under the personal law of the person
making such adoption, lawful, such child shall be deemed to be excluded from
the family of the employee;
RETIREMENT
(q) retirement means termination of the service of an employee otherwise
than on superannuation;
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;
WAGES
(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.
-
8/14/2019 PAYMENT OF GRATUITY ACT.docx
13/39
13| P a g e
CHAPTER 5
CONTINUOUS SERVICE
Section 2A- Continuous Service
For the purposes of this Act, - (1) an employee shall be said to be in continuous service for
a period if he has, for that period, been in uninterrupted service, including service which may
be interrupted on account of sickness, accident, leave, absence from duty without leave (not
being absence in respect of which an order treating the absence as break in service has been
passed in accordance with the standing order, rules or regulations governing the employees
of the establishment), lay off, strike or a lock-out or cessation of work not due to any fault of
the employee, whether such uninterrupted or interrupted service was rendered before or after
the commencement of this Act.
(2) where an employee (not being an employee employed in a seasonal establishment) is not
in continuous service within the meaning of clause (1), for any period of one year or six
months, he shall be deemed to be in continuous service under the employer -
(a) for the said period of one year, if the employee during the period of twelve calendar
months preceding the date with reference to which calculation is to be made, has actually
worked under the employer for not less than - (i) one hundred and ninety days, in the case of
an employee employed below the ground in a mine or in an establishment which works for
less than six days in a week; and (ii) two hundred and forty days, in any other case;
(b) for the said period of six months, if the employee during the period of six calendar months
preceding the date with reference to which the calculation is to be made, has actually worked
under the employer for not less than -
(i) ninety-five days, in the case of an employee employed below the ground in a mine or in an
establishment which works for less than six days in a week; and
(ii) one hundred and twenty days, in any other case;
Explanation : For the purpose of clause (2), the number of days on which an employee has
actually worked under an employer shall include the days on which -
(i) he has been laid-off under an agreement or as permitted by standing orders made under
the Industrial Employment (Standing Order's) Act, 1946 (20 of 1946), or under the Industrial
Disputes Act, 1947 (14 of 1947), or under any other law applicable to the establishment;
(ii) he has been on leave with full wages, earned in the previous year;
(iii) he has been absent due to temporary disablement caused by accident arising out of and
in the course of his employment; and
(iv) in the case of a female, she has been on maternity leave; so, however, that the totalperiod of such maternity leave does not exceed twelve weeks.
-
8/14/2019 PAYMENT OF GRATUITY ACT.docx
14/39
14| P a g e
(3) where an employee employed in a seasonal establishment, is not in continuous service
within the meaning of clause (1), for any period of one year or six months, he shall be
deemed to be in continuous service under the employer for such period if he has actually
worked for not less than seventy-five per cent of the number of days on which the
establishment was in operation during such period.
Section 2-A of the Payment of Gratuity Act speaks of what is continuous
service. In the event there is a strike or lock-out which is not on account of the
fault of the employee such interruption would not be considered for the purpose
of holding that the workman was in continuous employment. However, what is
material to note is that there should not be a cessation of relationship of
employer and employee. Section 2-A of the payment of gratuity act does not
take into consideration a case where the services of the workmen were
terminated for whatsoever reason and the said termination has not been set aside
or withdrawn.
The section does not state that the strike in a public utility service is illegal, only
when the conditions mentioned therein are present the strike is illegal.
ANALYSIS
1. This section defines continuous service2. Continuous service would be uninterrupted service3. Interruption on account of :-
i) Sickness, orii)
Accident, or
iii) Leave, oriv)Absence from duty without leave except break of service under
orders passed under the standing orders, rules or regulations
v) Lay-off, or strike, or lock-out, or cessation of work not due to anyfault of the employee concerned shall be included in counting the
period of continuous service
4. The interruptions may be before or after the commencement of the Act.
-
8/14/2019 PAYMENT OF GRATUITY ACT.docx
15/39
15| P a g e
5. Sub-section (2) of the section introduces a legal fiction for continuousservice of any one year or six months except for employees employed in
seasonal establishments. Employees employed in a seasonal
establishment whose case is not covered by sub-section (1) are dealt
with in sub-section (3) of the Section.
6. A person shall be deemed to be in continuous service with theemployer-
(i)For a period of one year if he has actually worked underthe employer during the twelve months immediately
preceding the date relevant for calculation for not less
than-
1. One hundred and ninety days (190 days) if employedbelow the ground in a mine or in an establishment
which works for less than six days per week;
2. Two hundred forty days (240 days) in any other case(ii)For a period of six months if the employee has actually
worked under the employer during the period of six
calendar months preceding the date with reference to
which calculation is to be made-
a)Ninety-five days (95days) in a mine or in anestablishment which works for less than six days in a
week; orb) One hundred and twenty days (120 days) in any other
case.
7. The explanation to sub-section enjoins that the days as detailed here-under be included in actual working days-
a) A lay-off (i) under an agreement, or (ii) standing orders, or (iii)Industrial Dispute Act, 1947, or (iv) any other law applicable to the
establishment.
-
8/14/2019 PAYMENT OF GRATUITY ACT.docx
16/39
16| P a g e
b) Period of leave on full wages earned in previous yearc) Absence due to temporary disablement from accident arising out of
and in the course of employment
d) Maternity leave in case of a female not exceeding twelve weeks8. Sub-section (3) likewise by legal fiction provides for employees
employed in seasonal establishment as to what constitutes continuous
service in case of those employees who are not covered by sub-section
(1) of the section
In such a case an employee shall be deemed to be in continuous service if
he has actually worked for seventy-five per cent of the days the
establishment was in operation for one year or six months.
CONSTITUTIONALITY
The words not due to any fault of the employee qualify not only theexpression cessation of work but also the words sickness, accident, lay-off,
strike and lock-out. Hence, it was held that it is not justified to contend that the
section is violative of Article 14 of the Constitution for treating the periods of
illegal strike or legal lock out as equivalent to the period of actual service
rendered by the employee.
In Coimbatore District textile Workers Union v. Meenakshi Mills Ltd.
6
theConstitutionality of Section 2-A was challenged on two grounds-
(i) In as much as any unauthorised but unpunished absence would not bea bar to gratuity, the provision could not be treated as a reasonable
restriction on the employers fundamental right under Article 19(1)(g)
and would not be protected by Article 19(6) of the Constitution.
6(1988) 2 LLN 352 (Mad.) (DB)
-
8/14/2019 PAYMENT OF GRATUITY ACT.docx
17/39
17| P a g e
(ii) Additional claims arising on account of the new provision will saddlethe employer with unbearable financial burden.
Rejecting these contentions the Court observed:
The very object of the amendment is to restore the law laid down by the
decision of the Supreme Court in Jeewanlal (1929) Ltd. Workmen7 and
therefore, absence from the duty without leave is treated as continuous
service excepting in cases specifically mentioned in the section. If an
employer had failed to take action against the employee at the appropriate
time for his absence from the duty without leave, then he should blame only
himself. He cannot contend that he is deprived of an opportunity to punish
the employee for his past absence from duty by the retrospective effect of the
amendment. A perusal of the Model Standing Orders shows that a habitual
absence without leave or absence without leave for more than ten
consecutive days was to be treated as misconduct. If for any reason employer
had not included such a clause in the standing orders framed for his
establishment or if an employer had not taken any action under that clause inspite of the existence of the same in the relevant standing orders, he must
have deemed to have waived his right to take action. As rightly contended by
learned counsel for respondents, the amended section is only a provision
enabling the employer to take advantage of a punishment imposed by him on
an employee for absence without leave.
CONTINUOUS SERVICE- Meaning thereof
Section 2A defines continuous service. According to this section, if an
employee renders continuous service for a period of 240 days in a year he will
be deemed to have continued in service for one year. This deeming provision
contained in Section 2A must be applied in interpreting the period of five years7AIR 1961 SC 1567
-
8/14/2019 PAYMENT OF GRATUITY ACT.docx
18/39
18| P a g e
mentioned in Section 4 (1). Section 2(b) also supports the interpretation because
as per the said section completed year of service means continuous service for
one year. Therefore, these provisions are emphatic in stating that if the
employee serves continuously for a period of 240 days in a year, he must be
deemed to have been continuously served for one year.8But the onus is on the
workman to prove that he has rendered continuous service for 240 days.
The definition of the expression continuous service in the Payment of
Gratuity Act indicates that as long as employee is in service and his service has
not been terminated, mere absence or not reporting for duty or ceasing to work
for no fault of the employee, the employee is deemed to be in service. There
should not be cessation of relationship of employer and employee. Section 2A
of Payment of Gratuity Act does not take into consideration a case where the
services of a workman are terminated for whatever reason and the said
termination had not been set aside or withdrawn.9
CONTINUOUS SERVICE: Break: Scope of
The definition of continuous service contemplates that the break in the service
must be due to the fault of the employee. The definition does not support the
contention, that when the contract of service comes to an end on paper, there
occurs a break in continuity of service even though the employee had continued
to work with the employer without any physical break in service. Such aninterpretation would defeat the object of the Act. In a case where the services
have been continued, the employee would be entitled to gratuity for the entire
period of service, as it would amount to continuous service within the
meaning of the Act.
8Mettur Beardshell Ltd. V. Regional Labour Commr. 1998 LLR 1072 (Mad.)
9Baburam Rameshwar v. Phoenix Mills Ltd. 1998 4 LLN 533
-
8/14/2019 PAYMENT OF GRATUITY ACT.docx
19/39
19| P a g e
In Maharashtra State Textile Corpn. Ltd. v. Gopal Balu Saikar, 10 respondent
was in employment since 1967 of textile Mill owned by Western India Spinning
and Manufacturing Mills, which was closed due to financial difficulty from July
1976. On 13-1-1977, the Court ordered the winding up of the company and
appointed the official Liquidator as Liquidator of the company. The petitioner
as an authorised person, took charge of the management of the said company on
1-8-1977 under the Section 18-FA of Industries (development and Regulation)
Act, 1951. On restarting of mill, the respondent was re-employed afresh on 14-
11-1977. Controlling Authority as also Appellate Authority held that petitioner
liable for payment of gratuity for the entire period from 1967, hence the
petition. Allowing the petition, a single judge of Bombay High Court held :
in the result, I find that the impugned order is not sustainable since it imposes
liability on the petitioners to pay gratuity to Respondent No. 1 for a period of
about 18years right from April 1966 till his superannuation in 1983. There is a
clear break in service of Respondent No. 1 from 13thJanuary, 1977 by reason of
Section 445 (3) of the Companies Act till her was re-employed n 14th
November, 1977. Therefore, applying section 10(2) of the Nationalization Act
the petitioner cannot be held liable for payment of gratuity to 1strespondent for
the period prior to the taking over the management of the undertaking.
CONTINUOUS SERVICE: not working for 240days in a year: effect
One of the causes for interruption of service given in the main part of the
definition is cessation of work not due to any fault of the employee concerned.
In other words cessation of work for which the employee is not responsible has
been ignored for the purposes of finding out whether the employee has rendered
continuous service. Conversely, there may be cases where there may be
cessation of work which may be exclusively due to the fault of the employee.
102003 1 Cur LR 677 (Bom.)
-
8/14/2019 PAYMENT OF GRATUITY ACT.docx
20/39
20| P a g e
An employee may remain absent without leave. The question is how is such a
period to be treated when the Court has to find out whether an employee has
rendered continuous service or not. The Legislature has provided in the
explanation for those cases where an employee is not in uninterrupted service
for one year. Putting it differently, the opening words of the first explanation
clearly show that the explanation was intended to deal with the case of an
employee whose services are interrupted. The employee dealt with by the first
explanation is obviously a person who is not covered by the main part of the
definition of continuous service. The main part of the definition of continuous
service deals with an employee in uninterrupted service. While the first
explanation deals with an employee who is not in uninterrupted service for one
year, this fact itself is sufficient to indicate that while the main part of the
definition in Section 2(c) deals with generally with the concept of continuous
service, the first explanation deals only with the case of an employee who is not
in uninterrupted service for one year. By that explanation, in the case of those
who are not in uninterrupted service for one year, the Legislature has introduceda fiction and by the fiction it is provided that if the employee has been actually
employed by the employer within the twelve month immediately preceding the
year for not less than 190 days, if employed below the ground in a mine or 240
days in any other case, except when he is employed in a seasonal establishment,
then such employee shall be deemed to be in continuous service. An artificial
meaning has, therefore been given to the words continuous service byfictionally treating an employee who is not in uninterrupted service for one year
as being in continuous service provided he is actually employed for the number
of days referred to in the explanation. The second explanation is also a
provision for artificially treating an employee in a seasonal establishment to be
in continuous service. Under the second explanation an employee of a seasonal
establishment is to be deemed to be in continuous service if he has actually
worked for not less than 75% of the number of days on which the establishment
-
8/14/2019 PAYMENT OF GRATUITY ACT.docx
21/39
21| P a g e
was in operation during the year. Normally an employee could not be said to be
in continuous service in a year by working only for a number of days but the
Legislature has now given an artificial meaning to the concept of continuous
service.
It has to be remembered that the definition of continuous service has been
given for the purpose of Section 4(1), a claim under which would necessarily
entail an enquiry as to whether an employee has to render continuous service,
therefore, the meaning of the words continuous service cannot be read in
isolation and the purposes for which these words have been defined become
very relevant in order to appreciate the import of the definition.
Continuous service in order to be rendered must no doubt presuppose a
contract of employment. But a contract of employment between a master and a
servant is not the same thing as rendering continuous service. The two are not
synonymous.
It is well known that gratuity is in nature of retiring benefit to those workmen
who have rendered long and unblemished service to the employer and has thuscontributed to the prosperity of the employer. The concept of gratuity was
explained by the Supreme Court in Delhi Cloth and General Mills Company
Ltd. v. Workmen11
. The Supreme Court observed as follows:
Gratuity paid to workmen is intended to help them after retirement on
superannuation death, retirement, physical incapacity, disability or otherwise.
The object of providing a gratuity scheme is to provide a retiring benefit toworkmen who have rendered long and unblemished service to the employer and
has thereby contributed to the prosperity of the employer. It is one of the
efficiency devices and is considered necessary for an orderly and human
elimination from industry of superannuated or disabled employees who, but for
such retiring benefits would continue in employment even though they function
inefficiently. It is not paid to an employee gratuitously or merely as a matter of
11AIR 1970 SC 919
-
8/14/2019 PAYMENT OF GRATUITY ACT.docx
22/39
22| P a g e
boon; it is paid to him for long and meritorious service rendered by him to the
employer.
It is this concept of reward for long and meritorious service that is incorporated
in Section 4(1) of the Act. Long and meritorious service would contemplate that
an employee has in fact rendered service and it was not enough to qualify for
the gratuity if he was merely on the muster-roll of the employer under a
subsisting contract of employment.
If the service of the employee is interrupted due to the strike for a fault of the
employee then such employee shall be deemed to be continuous service.
However, where the absence due to strike is an account of default of the
employee, such period of absence cannot be considered as uninterrupted service
and he would not be eligible for gratuity for the particular year if he does not
complete 240 days in the year by excluding such period of absence due to strike
on account of the mistake of the employee.12
CONTINUOUS SERVICE: Holidays covered
The term continuous service means uninterrupted service and includes service
which is interrupted by sickness, accident, leave, lay-off, strike or a lock-out or
cessation of work not due to any fault of the employee concerned whether such
uninterrupted or interrupted service was rendered before or after the
commencement of the Act. Thus, Sundays, weekly holidays and national orfestival holidays are to be included in the computation of the period of
continuous service under Section 2A of the Gratuity Act.13
12Kaleeswarar Mills A Unit v. Asstt. Labour Commr. 2003 (1) LLJ 231
13Sri Ahilandeshwari Mills Ltd. V. Asstt. Commr. Of Labour 1999 LLR 576 (Mad.)
-
8/14/2019 PAYMENT OF GRATUITY ACT.docx
23/39
23| P a g e
CHAPTER 6
OTHER PROVISIONS
Section 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
This Section authorises the appropriate Government, both Central and State to
appoint a controlling authority. The controlling authority would be responsible
for the administration of the Act.
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 suchminor, 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.
-
8/14/2019 PAYMENT OF GRATUITY ACT.docx
24/39
24| P a g e
(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 not 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, willful 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
-
8/14/2019 PAYMENT OF GRATUITY ACT.docx
25/39
25| P a g e
(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.
For the purpose of claiming gratuity under the Act, the employee must have
rendered continuous service for a period of 5years. Where such period of
service has not been rendered gratuity shall not be paid under the Act. Where an
employee claims gratuity on the basis of an agreement it was held in D.S.
Purwar v. Elphinstone Spinning and Weaving Mills14, that claim of gratuity on
the basis of an agreement is outside the scope of adjudication under the
Payment of Gratuity Act, 1972.
In Duncan Agro industries Limited v. Subanna B.15
the question involved for
determination was whether the workmen were entitled for gratuity for the
period of service rendered before coming into force of this Act. It was held that
gratuity is payable to an employee who has rendered continuous service of not
less than five years and continuous service in view of the provisions of Section
2(c) which defines continuous service as service whether rendered prior or after
commencement of the Act, workmen would be entitled for gratuity for the
period of service rendered prior to or after the commencement of the Act.
In Rashtriya Mill Mazdoor Sangh v. National Textile Corporation (South
Maharashtra) Ltd. & others16it was held that liability to pay gratuity arises on
the date of resignation, superannuation or retirement etc. such liability if arises
prior to the date of taking over the management of textile undertakings by the
National Textile Corporation, would be that of owners of Textile undertakings
and not of National Textile Corporation.
14
1986 (53) FLR 600 (Bom)15(1984) I LLJ 96 (AP)
16(1996) I LLJ 787 (SC)
-
8/14/2019 PAYMENT OF GRATUITY ACT.docx
26/39
26| P a g e
Further it was held in Bakshish Singh v. M/s. Darshan Engineering Works and
others17, that the provision for payment of gratuity contained in Section 4(1)(b)
of the Act is one of the minimum service conditions which must be made
available to the employees notwithstanding the financial capacity of the
employer to bear its burden and the said provisions are a reasonable restrictions
on the right of the employer to carry on his business within the meaning of
Article 19(6) of the Constitution. Hence Section 4(1)(b) of the Act is valid and
legal.
Section 4(6) - InBharath Gold Mines Ltd. v. Regional Labour Commissioner,18
a workman was guilty of theft committed in the course of employment. In the
opinion of the management the offence amounted to an offence involving moral
turpitude and the workman was dismissed on this ground and hence the gratuity
was forfeited. It was held that after the amendment of the year 1984 notice to
show cause against forfeiture of gratuity was mandatory and its non-compliance
renders the forfeiture illegal.
In Ravindra Kumar Nangia v. Rashtriya Chemicals and Fertilizers Ltd.19 the
petitioner was an employee of the respondent. His services came to an end
simpliciter on attaining the age of 58 years i.e. the age of superannuation. His
services were not terminated on any grounds mentioned in Section 4(6) of the
Act. On refusal to release payment of his gratuity in view of certain case
pending against him, the employee approached the High Court. Allowing thepetition by the employee the High Court held observed that the services of the
petitioner were not terminated due to any act, wilful omission or negligence
causing damage to the property of the employer or due to his riotous act or
disorderly behaviour or due to an offence involving moral turpitude. But the
service came to an end simpliciter on his attaining age of superannuation of 58
17
(1994) I LLJ 197 (SC)18(1986) 53 FLR 340 (Karn)
19(2002) I LLJ 648 (Bom.)
-
8/14/2019 PAYMENT OF GRATUITY ACT.docx
27/39
27| P a g e
years. It was further observed that even till date f the order of the High Court
i.e., October 10. 2001 which was more than seven years after his superannuation
no departmental action has been initiated. In these circumstances, the High
Court held that the impugned action of the employer respondent not to release
gratuity payable to the petitioner was beyond time under the relevant rules of
conduct and discipline of respondent and hence could not be sustained.
Section 7
Determination of the amount of gratuity payable
(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 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.
(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 relationto, an employee for payment of gratuity, or as to the person entitled to receive
-
8/14/2019 PAYMENT OF GRATUITY ACT.docx
28/39
28| P a g e
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 disputemay 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 maybe, 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.
-
8/14/2019 PAYMENT OF GRATUITY ACT.docx
29/39
29| P a g e
(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 sixtydays 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 sub-
section (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.
-
8/14/2019 PAYMENT OF GRATUITY ACT.docx
30/39
30| P a g e
CHAPTER 7
AMENDMENTS TO THE PAYMENT OF GRATUITY ACT, 1972
The Payment of Gratuity (Amendment) Bill, 2009 as passed by both the Houses
of Parliament has amended the definition of employee contained in the
Payment of Gratuity Act, 1972 for covering teachers in private institutions. For
the information of the readers, it may be pointed out here that the Payment of
Gratuity Act, 1972 has been amended five times so far. The amendments made
are as given below:-
(i) The first amendment made by the Payment of Gratuity (Amendment) Act,
1984 inter alia provides for raising the wage limit for coverage from Rs.1000/-
to Rs.1600/- per month and appointment of Inspectors. This amendment was
brought into force w.e.f. 1.7.1984.
(ii) The second amendment made by the Payment of Gratuity (Second
Amendment) Act, 1984 inter alia re-defined the term continuous service and
provided for grant of exemption to a class of employees from the operation of
the Act. This amendment came into force from 18.5.1984.(iii) The third amendment made by the Payment of Gratuity (Amendment) Act,
1987 inter alia provided for:-
(a) raising the wage limit for coverage from Rs.1,600/- to Rs.2,500/- per month,
which was further raised to Rs.3,500/- p.m. w.e.f. 1.12.1992.
(b) replacing the ceiling of twenty months wages for payment of gratuity by a
monetary ceiling of Rs.50,000/-(c) making it obligatory for the employers to pay simple interest at a specified
rate if the gratuity is not paid within 30 days from the date it falls due.
(d) Compulsory insurance/setting of gratuity fund for payment of gratuity.
The amendments at (a) to (c) above were brought into force w.e.f. 1.10.1987.
The amendment at (d) has not been brought into force so far. In fact, this
particular provision is being reviewed in view of certain subsequent
-
8/14/2019 PAYMENT OF GRATUITY ACT.docx
31/39
31| P a g e
developments. The rate of simple interest mentioned at (c) above has been fixed
at 10% per annum w.e.f. 1.10.1987.
(iv) The fourth amendment made by the Payment of Gratuity (Amendment) Act,
1994 inter alia provided for:-
(a) Doing away with the wage ceiling altogether for coverage under the
Payment of Gratuity Act, 1972;
(b) Enhancing the ceiling of the maximum amount of gratuity from Rs.50,000/-
to Rs. one lakh. This amendment came into force w.e.f. 24.5.1994.
(v) The Fifth Amendment made by the Payment of Gratuity (Amendment) Act,
1998 has enhanced the ceiling on maximum amount of gratuity from Rs. one
lakh to Rs.3.50 lakh with effect from 24.9.1997.
Background of the present amendments
Before the enactment of the Payment of Gratuity Act, 1972, there were two
State Laws providing for payment of gratuity. These were the Kerala Industrial
Employees Payment of Gratuity Act, 1970 and the West Bengal EmployeesPayment of Gratuity Act, 1971. The question of having a Central Legislation on
the subject was discussed in the Labour Ministers Conference held in New
Delhi on 24 and 25 August, 1971 as also the Indian Labour Conference held on
22 and 23 October 1971 and general consensus was reached for enacting a
Central Legislation on payment of gratuity. Accordingly, a Central Law
modelled largely on the pattern of West Bengal Employees Payment ofGratuity Act, 1971 was enacted and is known as the Payment of Gratuity Act,
1972. It was brought into force with effect from the 16.9.1972 vide S.O. No.601
(E) dated 16.9.1972 and it extends to whole of India. The Act has been recently
extended to the State of Sikkim w.e.f. 1.11.1995. The Act provides for payment
of gratuity to employees employed in any factory, mine, oilfield, plantation,
port, Railway Company and in any shop or establishment employing ten or
more workers. It has also been extended to motor transport undertakings
-
8/14/2019 PAYMENT OF GRATUITY ACT.docx
32/39
32| P a g e
employing ten or more workers. Under the Act, gratuity is payable at the rate of
fifteen days wages for every completed year of service or part thereof in excess
of six months subject to a monetary ceiling of Rs.3.50 lakh. In case of
employees employed in seasonal establishments, gratuity is payable at the rate
of seven days wages. A worker is entitled to gratuity in the contingency of
superannuation, retirement, resignation, death or disablement due to accident or
disease, subject to completion of five years continuous service. The condition of
five years is however, not applicable in case of death or disablement. Further, it
does not make any discrimination between casual, contract, temporary and
permanent worker who has completed the prescribed period of five years
continuous service as defined in section 2A of the Act. The liability for payment
of gratuity vests in the employer. Gratuity is payable in addition to pension or
contributory provident fund, if any. The Payment of Gratuity Act, 1972 was
made applicable to local bodies with effect from 8.1.1982. Therefore, the
schools under the control of local bodies were covered under the Act with effect
from 8.1.1982 itself. However, the employees of other educational institutionswere facing denial of gratuity as they were not covered under the Act. The
employees of the Government schools are already entitled to gratuity under the
extant rules of the Government governing gratuity and pension but the
employees of the private schools were having no legal entitlement to gratuity.
As gratuity is an old age retiral social security benefit, it was considered
desirable to extend the benefit of the Payment of Gratuity Act, 1972 to allemployees employed in all educational institutions having ten or more persons.
Accordingly, the Central Government extended the provisions of Payment of
Gratuity Act, 1972 to the educational institutions employing 10 or more persons
vide the Ministry of Labour and Employment Notification No. S.O. 1080 dated
3 April 1997. The Notification came into force w.e.f 19.4.1997, date when it
was published in the Gazette of India. In an appeal filed before the Supreme
Court in the case of Ahmedabad Private Primary Teachers' Association v.
-
8/14/2019 PAYMENT OF GRATUITY ACT.docx
33/39
33| P a g e
Administrative Officer and others, AIR 2004 SC 1426, the Apex Court in its
judgment dated 13.1.2004 ruled that teachers are not entitled to gratuity under
the payment of Gratuity Act, 1972 in view of the fact that teachers do not
answer description of definition of employee under section 2 (e) of the
Payment of Gratuity Act, 1972. The ruling also, inter alia, states that non-use of
wide language similar to definition of employee as is contained in section 2(f)
of the Employees Provident Funds and Miscellaneous Provisions Act, 1952
reinforces the conclusion that teachers are not covered in the definition. The
observations of the Supreme Court are as follows:-
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 aseparate legislation for them in this regard. That is the subject matter solely of
the Legislature to consider and decide.
Keeping in view the observations of the Supreme Court as mentioned above the
definition of employee under section 2(e) in the existing Act has been
proposed to be widened in keeping with the spirit of the Act. Existing Definition
of employee under Section 2 (e) of the Payment of Gratuity Act, 1972 Section2 (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
-
8/14/2019 PAYMENT OF GRATUITY ACT.docx
34/39
34| P a g e
governed by any other Act or by any rules providing for payment of gratuity.
The amendment has retained the basic features of the definition of the term
employee as given in the Payment of Gratuity Act, 1972, while widening its
scope and adopted the definition of employee as follows:-
Amended Definition
Section 2(e) : employeemeans any persons (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, 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 Government or a State Government
and is governed by any other Act or by any rules providing for payment of
gratuity.
The Government has made the amendment with retrospective effect from April
3, 1997.
The Government has also introduced Payment of Gratuity (Amendment) Bill,2010 in Parliament seeking to raise the current gratuity ceiling from Rs. 3.5
lakh, in the light of the Sixth Pay Commission report that recommended raising
it to Rs. 10 lakh. The Bill has been passed by both the Houses of Parliament
recently. After having discussed the amendments introduced, let us briefly
discuss the salient features of the Payment of Gratuity Act, 1972 so as to have
an understanding of the basic provisions of the Act.As mentioned earlier, the Payment of Gratuity Act, 1972 was enacted and
brought into force from 16 September 1972. The Act provides for scheme for
payment of gratuity to the employees employed in factories, mines, oilfields,
plantations, ports, railway companies, shops and other establishments and
matters connected therewith or incidental thereto.
Extent and Application
-
8/14/2019 PAYMENT OF GRATUITY ACT.docx
35/39
35| P a g e
The Act extends to whole of India except plantations in the State of Jammu and
Kashmir. It applies at present to:
(a) Every factory, mine, oilfield, plantation, port and railway company;
(b)Every shop or establishment within the meaning of any law for the time
being in force in relation to shops and establishments in a State in which ten or
more persons are employed or were employed, on any day of the preceding
twelve months; and
(c) Such other establishments or class of establishments in which ten or more
employees are employed, or were employed on any day of the preceding twelve
months, as the Central Government may, by notification, specify in this behalf.
In exercise of these powers, the Central Government has so far extended the
provisions of the Act to the various classes of establishments, where ten or more
persons are employed or were employed on any day of the preceding twelve
months as mentioned above.
Excluded Categories of Employees
The definition of employee in Section 2(e) specifically excludes from thepurview of the Act, any 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.
Eligibility Conditions
Gratuity is payable to every employee, other than an apprentice, in an
establishment to which the provisions of the Act applies, on termination of hisemployment either due to superannuation or retirement or resignation, subject to
completion of continuous service for not less than five years, Gratuity is also
payable in case of termination of service due to death or disablement, due to
accident or disease and there is no condition of service in these two
contingencies.
Quantum of Gratuity
-
8/14/2019 PAYMENT OF GRATUITY ACT.docx
36/39
36| P a g e
For every completed year of service or part thereof in excess of six months, the
employees, other than the seasonal employees are entitled to gratuity at the rate
of fifteen days wages based on the rate of wages last drawn. The employees of
seasonal establishment who do not work throughout the year are entitled to
gratuity at the rate of seven days wages for each season. These provisions do
not, however, affect the right of an employee to receive better terms of gratuity
under any award or agreement of contract with the employer.
Limit for Payment of Gratuity
The employers have to pay the gratuity within thirty days from the date it
becomes due, if the gratuity is not paid within the prescribed time limit, the
employer is required to pay the amount of gratuity with interest as specified by
the Government from time to time.
Grant of Exemption
Section 5(1) of the Payment of Gratuity Act gives power to the appropriate
Government to exempt any establishment, factory, mine, oilfield, plantation,
port, railway company or shop from the operation of the provisions of this Act,if in the opinion of the appropriate Government, employees of such shop etc.
are in receipt of gratuity or pensionary benefits not less favourable than the
benefits conferred under this Act. There is a similar provision for grant of
exemption to a class of employees in Section 5 (2) of the Act.
Administration of the Act
The Central Government is responsible for administration of the Act in relationto the following:-
(a) factories or establishments belonging to or under the control of the Central
Government;
(b) establishments having branches in more than one State; and
(c) major ports, mine oilfields or railway companies.
The State Government is responsible for administration of the Act in all other
cases. The Central Government have appointed Chief Labour Commissioner
-
8/14/2019 PAYMENT OF GRATUITY ACT.docx
37/39
37| P a g e
(Central) and Regional Labour Commissioner (Central) and Assistant Labour
Commissioners (Central) as the Controlling/ Appellate Authorities under the
Act for their respective areas.
Procedure for the Settlement of Dispute, Relating to Payment of Gratuity:
If there is any dispute about the amount of gratuity payable to an employee, the
employee may make an application to the Controlling Authority of the area for
taking necessary action. The Controlling Authority shall issue a certificate for
the amount of gratuity dues to the Collector who shall recover the same as
arrears of land revenue and pay the same to the person entitled to receive the
gratuity. Any person aggrieved by the order passed by the Controlling Authority
can prefer an appeal to the Appellate Authority.
Penalties for Non-Payment of Gratuity:
Where the offence relates to non-payment of gratuity payable under the Act, the
employer shall be punishable with imprisonment for a term which shall not be
less than three months but which may extend to one year or fine which shall not
be less than 10 thousand rupees but extend to twenty thousand rupees or both.
-
8/14/2019 PAYMENT OF GRATUITY ACT.docx
38/39
38| P a g e
CHAPTER 8
CONCLUSIONS
The Payment of Gratuity Act is a comprehensive social security legislation
providing for the retiral benefit to an employee on his superannuation. It is
apparent that the Payment of Gratuity Act enacts a complete Code containing
detailed provision, covering all essential features of a scheme for payment of
gratuity act. It creates the right to payment of gratuity, indicates when the right
will accrue, and lays down the principles for quantification of gratuity.
For wage-earning population security of income, when the worker becomes old
or infirm, is of consequential importance. The provision for social security
measures, retiral benefits like gratuity, provident fund and pension (known as
triple benefits) are of special importance. In bringing the Act on the statue 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 relating to gratuity
as a compulsory statutory retiral benefit. The Act accepts, in principle,
compulsory payment of gratuity as a social security measure to wage-earning
population in industries, factories and establishments. Thus the main purpose
and concept of gratuity is to help the workman after retirement, whether
retirement is a result of superannuation, or physical disablement or impairment
of vital part of body. Thus it is a sort of financial assistance to tide over post
retiral hardships and inconveniences.
-
8/14/2019 PAYMENT OF GRATUITY ACT.docx
39/39
Bibliography
1) Kharbanda Commentaris on Payment of Gratuity Act, 1972, Law PublishingHouse, eighth revised edition 2011
2) K.D. Shrivastava, Payment of Gratuity Act, Eastern book Company, 2005Edition
3) Manupatra4) S.N.Mishra, Industrial and Labour Laws5) Goswami, Industrial and Labour Laws