Case BriefsTribunals/Commissions/Regulatory Bodies

Central Administrative Tribunal (CAT):  Aradhana Johri, Member (A), partly allowed the instant application whereby the applicant had sought for issuance of directions for the release of gratuity and leave encashment which had been illegally withheld by the respondent.

The applicant was appointed to the post of Constable with the respondents on 31-07-1975. A CBI case was registered against the applicant under PC Act and he was suspended with effect from 09-11-1995. However, the suspension was subsequently revoked vide an order dated 28-03-2000. On 02-08-2001, the applicant was convicted by the Trial Court and, consequently, was dismissed from service. Again, the applicant was subsequently reinstated and superannuated on attaining the age of retirement on 31-08-2015. Though the applicant was paid provisional pension, his gratuity and leave encashment for 278 days leave which stood to his credit had been illegally withheld.

As per Rule 69 of the Central Civil Services (PensionRules1972

“(1)(c) No gratuity shall be paid to the Government servant until the conclusion of the departmental or judicial proceedings and issue of final orders thereon.”

The Tribunal relied on Mahanadi Coalfields Ltd. v. Rabindranath Choubey, 2020 SCC OnLine SC 470, wherein the Supreme Court had held that it was permissible for the employer to withhold the payment of gratuity even after the employee had attained his superannuation from service because of the pendency of disciplinary proceedings against him in view of Rule 34.3 of the Rules, 1978, the employer had a right to withhold gratuity during pendency of disciplinary proceedings.

Further, the Tribunal observed that 39 (3) reads as follows:

“(3) The authority competent to grant leave may withhold whole or part of cash equivalent of earned leave in the case of a Government servant who retires from service on attaining the age of retirement while under suspension or while disciplinary or criminal proceedings are pending against him.”

Consequently, the Tribunal ordered that leave encashment of 286 days should be paid to the applicant since the plea of money becoming recoverable had not been taken by the respondents. However, the demand of the applicant for release of gratuity and interest had been rejected.[Baldev Singh v. Union of India, O.A. 879 of 2020, decided on 02-03-2021]


Kamini Sharma, Editorial Assistant has reported this brief.

Case BriefsSupreme Court

Supreme Court: In the case where the employees of Municipal Corporation governed by the Uttar Pradesh Municipal Corporation Act, 1959 claimed gratuity under the Payment of Gratuity Act, 1972, the bench of MM Shantanagoudar and Hemant Gupta, JJ held that liberal payment of gratuity is in the interest of the employees, thus, the gratuity would be payable under the Payment of Gratuity Act.

Court noticed that the Payment of Gratuity Act is applicable to

(1) every factory, mine, oilfield, plantation, port and railway company;

(2) 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, the said provision has two conditions, viz.

(i) a shop or establishments within the meaning of a State law and

(ii) in which ten or more persons are employed; and

(3) the establishments or class of establishments which Central Government may notify.

The Court, hence, said that in terms of the above said Section 1(3)(c) of the Act, the Central Government has published a notification on 08.01.1982 and specified Local Bodies in which ten or more persons are employed, or were employed, on any day of the preceding twelve months as a class of establishment to which this Act shall apply. It, therefore, held,

“Such notification makes it abundantly clear that the Act is applicable to the local bodies i.e., the Municipalities. Section 14 of the Act has given an overriding effect over any other inconsistent provision in any other enactment. … In view of Section 14 of the Act, the provision in the State Act contemplating payment of Gratuity will be inapplicable in respect of the employees of the local bodies.”

[Nagar Ayukt Nagar Nigam, Kanpur v. Sri Mujib Ullah Khan, 2019 SCC OnLine SC 462, decided on 02.04.2019]

Case BriefsSupreme Court

Supreme Court: The Bench of Abhay Manohar Sapre and Indu Malhotra, JJ has held that pendency of any writ petition by itself does not affect the constitutionality of a Statute. It said:

“It is only when the Court declares a Statute as being ultra vires the provisions of the Constitution then the question may arise to consider its effect on the rights of the parties and that would always depend upon the declaration rendered by the Court and the directions given in that case.”

Background of the case:

“Keeping in view the amendment made in the definition of Section 2(e), which as stated above was not brought to the notice of the Bench, this issue was not considered though had relevance for   deciding the question involved in the appeal. It is for this reason, we prima facie find error in the judgment and, therefore, are inclined to stay the operation of our judgment.”

What Court said in Ahmadabad Pvt. Primary Teachers Association verdict:

“The legislature was alive to various kinds of definitions of the word “employee” contained in various previous labour enactments when the Act was passed in 1972. If it intended to cover in the definition of “employee” all kinds of employees, it could have as well used such wide language as is contained in Section 2(f) of the Employees’ Provident Funds Act, 1952 which defines “employee” to mean “any person who is employed for wages in any kind of work, manual or otherwise, in or in connection with the work of an establishment …”. Non-use of such wide language in the definition of “employee” in Section 2(e) of the Act of 1972 reinforces our conclusion that teachers are clearly not covered in the definition.”

Ruling:

Hence, after noticing that though the definition was amended in 2009 by Act No.47 of 2009, yet the same was given retrospective effect from 03.04.1997 so as to bring the amended definition on Statute Book, from 03.04.1997, the Court held that the effect of the amendment made in the Payment of Gratuity Act vide Amending Act No. 47 of 2009 on 31.12.2009 was two­fold.

  • the law laid down by this Court in the case of Ahmadabad Pvt. Primary Teachers Association was no longer applicable against the teachers, as if not rendered, and
  • the teachers were held entitled to claim the amount of gratuity under the Payment of Gratuity Act from their employer with effect from 03.04.1997.

When the counsel for the Institution argued that the constitutional validity of Amending Act No. 47 of 2009 was under challenge in this Court in a writ petition, which is pending, the Court rejected the argument and said that pendency of any writ petition by itself does not affect the constitutionality of a Statute.

[Birla Institute of Technology v. State of Jharkhand, 2019 SCC OnLine SC 340, decided on 07.03..2019]

Case BriefsSupreme Court

Supreme Court: Kurian Joseph, J. delivered the judgment for himself and Sanjay Kishan Kaul, J. wherein it was held that forfeiture of gratuity, under the Payment of Gratuity Act, 1972 is not automatic on dismissal from service.

The respondent, an employee of the appellant bank, was dismissed on account of proved misconduct involving moral turpitude Consequently, the respondent was issued a show-cause notice as to why the gratuity amount payable to him should not be forfeited. Subsequently, an explanation of the respondent was rejected and the gratuity was forfeited. The respondent challenged the said forfeiture before the Kerala High Court which held that the gratuity was payable. Aggrieved thus, the appellant filed the instant appeal.

The question that arose for consideration before the Supreme Court was ‘whether forfeiture of gratuity is automatic on dismissal form service?’ The Supreme Court referred to Section 4 of the Act along with its earlier judgments in Beed District Central Coop. Bank Ltd. v. State of Maharashtra, (2006) 8 SCC 514; Y.K. Singla v. PNB, (2013) 3 SCC 472 and Jaswant Singh Gill v. Bharat Coking Coal Ltd., (2007) 1 SCC 663. The Court observed that forfeiture of gratuity, either wholly and partially is permissible under  Section 6(b)(ii) only in the event that termination is on the account of riotous or disorderly conduct or any other act of violence or on account of an act constituting an offence involving moral turpitude, when he is convicted. In the present case, there was no conviction of the respondent for the misconduct which according to the bank was offence involving moral turpitude. The Court finally observed that forfeiture of gratuity is not automatic on dismissal from service, it is subject to sub-sections (5) and (6) of Section 4 of Payment of Gratuity Act. The Court found that the there was no infirmity in the order impugned. Thus, the appeal was dismissed holding it to be sans merit. [Union Bank of India v. C.G. Ajay Babu,2018 SCC OnLine SC 962, dated 14-08-2018]

Foreign LegislationLegislation Updates

The Payment of Gratuity (Amendment) Act, 2018, has been brought into force from 29-03-2018. The Bill was passed by Lok Sabha on 15-03-2018 and by Rajya Sabha on 22-03-2018.

Background —

  • The Payment of Gratuity Act, 1972 applies to establishments employing 10 or more persons. The main purpose for enacting this Act is to provide social security to workmen after retirement, whether retirement is a result of superannuation, or physical disablement or impairment of vital part of the body. Therefore, the Payment of Gratuity Act, 1972 is an important social security legislation to wage earning population in industries, factories and establishments.
  • The present upper ceiling on gratuity amount under the Act is Rs 10 lakhs. The provisions for Central Government employees under Central Civil Services (Pension) Rules, 1972 with regard to gratuity are also similar.  Before implementation of 7th Central Pay Commission, the ceiling under CCS (Pension) Rules, 1972 was Rs 10 lakhs.  However, with implementation of 7th Central Pay Commission, in case of Government servants, the ceiling has been raised to Rs 20 lakhs.
  • Therefore, considering the inflation and wage increase even in case of employees engaged in private sector, the Government decided that entitlement of gratuity should also be revised in respect of employees who are covered under the Payment of Gratuity Act, 1972. Accordingly, the Government initiated the process for amendment to Payment of Gratuity Act, 1972 to increase the maximum limit of gratuity to such amount as may be notified by the Central Government from time to time. Now, the Government has issued the notification specifying the maximum limit to Rs 20 lakhs.
  • In addition, the Act has also amended the provisions relating to calculation of continuous service for the purpose of gratuity in case of female employees who are on maternity leave from ‘12 weeks’ to ‘such period as may be notified by the Central Government from time to time’.  This period has been notified as ’26 weeks’.

Major Impact —

The Amendment will ensure harmony amongst employees in the private sector and in Public Sector Undertakings/Autonomous Organizations under Government who are not covered under CCS (Pension) Rules. These employees will be entitled to receive higher amount of gratuity at par with their counterparts in Government sector.

[Press Release no. 1527082, dt. 30-03-2018]

Ministry of Labour and Employment

Foreign LegislationLegislation Updates

The Parliament passed the Payment of Gratuity (Amendment) Bill, 2018 as on 22-03-2018. The Bill seeks to double the ceiling of tax-free gratuity to Rs 20 lakh. Passage of the said Bill will hugely benefit the middle and senior management employees who are getting higher salaries. With the ceiling on gratuity being raised, they will receive a higher gratuity amount as tax-free compensation, at par with central government employees, which is Rs 20 lakh. A person who retires with a salary of Rs 10 lakh p.a. needs to work for about 41 years to reach the revised limit of Rs 20 lakh. Similarly, a person whose annual salary is Rs 20 lakh at the time of retirement will achieve the Rs 20 lakh gratuity limit in about 20 years of service.

In addition, the Bill also envisages to amend the provisions relating to calculation of continuous service for the purpose of gratuity in case of female employees who are on maternity leave from ‘twelve weeks’ to such period as may be notified by the central government from time to time.

After enactment of the Act, the power to notify the ceiling of the amount of gratuity under the Payment of Gratuity Act, 1972 shall stand delegated to the central government so that the limit can be revised from time to time keeping in view the increase in wage and inflation and future pay commissions.

STATEMENT OF OBJECTS AND REASONS

1. The Payment of Gratuity Act, 1972 (the Act) was enacted 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 who have rendered a minimum five years of continuous service with the establishment employing ten or more persons. The calculation of gratuity amount is based on a formula, which is fifteen days of wages for each year of completed service, subject to a ceiling. The present ceiling, as provided under Section 4 of the Act is rupees ten lakhs which was fixed in the year 2010.

2. The period of twelve weeks of maximum maternity leave presently provided in Section 2A of the Act for the purpose of calculating continuous service under the Act is on the basis of period of maximum maternity leave as provided in the Maternity Benefit Act, 1961. The maximum maternity leave under the Maternity Benefit Act, 1961 has been enhanced from twelve weeks to twenty-six weeks by the Maternity Benefit (Amendment) Act, 2017. It is therefore proposed to empower the Central Government to enhance the period of existing twelve weeks to such period as may be notified by it.

3. The provisions contained in the Central Civil Services (Pension) Rules, 1972 for Central Government employees with regard to gratuity are similar to the provisions contained in the Act. After implementation of the 7th Central Pay Commission, the ceiling of gratuity for Central Government employees has been enhanced from rupees ten lakhs to rupees twenty lakhs. In the past, the ceiling amount of gratuity under the Act has followed the Central Pay Commission recommendations. Therefore, considering the inflation and wage increase even in case of employees engaged in private and public sector, the entitlement of gratuity is also required to be revised for employees who are covered under the Act. It has also been proposed to empower the Central Government to notify the ceiling proposed, instead of amending the said Act, so that the limit can be revised from time to time keeping in view the increase in wage and inflation, and future Pay Commissions.

4. The Payment of Gratuity (Amendment) Bill, 2017, inter alia, proposes to amend—

(a) Section 2A of the Act so as to empower the Central Government to notify the period of maternity leave in case of female employee as deemed to be in continuous service in place of existing twelve weeks;

(b) Section 4 of the Act to substitute the words “ten lakh rupees” with the words” such amount as may be notified by the Central Government from time to time”.

5. The Bill seeks to achieve the above objects.

Ministry of Labour and Employment