Payments Of Gratuity Act 1972 - Delhi Universitycommerce.du.ac.in/web/uploads/e - resources 2020...
Transcript of Payments Of Gratuity Act 1972 - Delhi Universitycommerce.du.ac.in/web/uploads/e - resources 2020...
PAYMENTS OF GRATUITY ACT 1972
INTRODUCTION
• Latin Word – Gratuitous
• Gratuity means a lump sum
payment made by an employer
as the retrial reward for his past
service when his employment is
terminated
OBJECTIVE
• The main purpose and concept of
gratuity is to help the workman
after the retirement, whether the
retirement is a result of the rules
of superannuation or physical
disability or impairment of the
vital part of the body.
APPLICABILITY
• It extends to the whole of India except J&K
• Every factory (as defined in Factories Act),
mine, oilfield, plantation, port and railway.
• Every shop or establishment to which Shops &
Establishment Act of a State applies in which 10
or more persons are employed at any time
during the year end.
• Any establishment employing 10 or more
persons as may be notified by the Central
Government.
• Once Act applies, it continues to apply even if
employment strength falls below 10.
EMPLOYEE MEANING
• Employee does not include- holds
post under central or state
government.
• Teacher cannot be called as
employee due to amendment of
this act.
An employee shall be said to be in continuous service
even his/her service in interrupted by way:
1. sickness,
2. accident,
3. leave,
4. absence from duty without leave,
5. leave with full wage,
6. temporary disablement,
7. laid-off period,
8. maternity leave : 26 weeks (THE PAYMENT OF
GRATUITY (AMENDMENT) ACT, 2018)
whether such uninterrupted or interrupted service was
rendered before or after the commencement of this Act.
SECTION 2A – CONTINUOUS SERVICE
In case of period of one year/6months
• 190/95 days employment under the
ground in mines, or in establishment
which works less than 6 days in a week.
• 240/120 days in case of other any
establishments.
SEC 3 – CONTROLLING AUTHORITY
The appropriate Government may, by
notification, appoint any officer to be a
controlling authority, who shall be
responsible for the administration of
this Act and different controlling
authorities may be appointed for
different areas.
SEC 4 – PAYMENT OF GRATUITY
Gratuity is payable when there is :-
• Continuous service of 5 yrs(not necessary
incase of death or disablement)
• Incase of death ,the amount shall be paid to
nominee or legal heir
• Time limit- Within 30 days of gratuity
becoming payable
• Maximum Amount-The gratuity payable to an
employee shall not exceed Rs. 20,00,000
SEC 4A - COMPULSORY INSURANCE
SEC 5 - POWER TO EXEMPT
• It is mandatory where number of employees is more
than 500;
• The registration shall be done in prescribed time & in
prescribed manner;
• The insurance shall be taken from LIC or any other
prescribed insurance company;
• However , employer of an establishment belonging to
or under the control of CG or SG are exempted from
the operations of sec.4A.
The government is having the
power to exempt the any
establishment, factory, mine,
oilfield, plantation, port, railway
company or shop are in receipt of
gratuity or pensionary benefits
not less favorable than the
benefits conferred under this
Act.
SEC 6 - NOMINATION
• Every employee, who has completed 1
yr of service , is compulsorily required to
make a nomination (Form F)
• The nomination must be made within 30
days
• The nomination must be made in favor of
one or more members of the family
• If at the time of making nomination, the
employee does not have family, the
nomination may be made in favor of any
person
• The employee may distribute the amount
of gratuity amongst more than one
nominee
SEC 7 - DETERMINATION OF
THE AMOUNT OF GRATUITY. [SEC 7]
• Any person who is eligible for payment of
gratuity should write an application to his
employer within certain time.
• When gratuity becomes payable and if no
application received from employee,
employer should give notice of payment
of gratuity to the employer and also to the
controlling authority specifying the
amount of gratuity so determined.
• The employer should arrange to pay the
amount of gratuity within 30 days from the
date it becomes payable to the person to
whom the gratuity is payable.
SEC 8 - RECOVERY OF GRATUITY
• If the employer fails to pay the gratuity
within the prescribed time (i.e., within 30
days of termination of employment) , the
controlling authority is empowered to issue
a certificate to the collector to recover the
amount of Gratuity.
• The employer shall also be liable to pay
Compound interest at such rate as may be
notified by CG from time to time.
• The interest shall be paid from the date of
expiry of the prescribed period& ending
with actual date of payment of Gratuity
• The interest payable shall not exceed the
amount of gratuity payable.
SEC 9 - PENALTIES
EXCEPTIONS
• Condition of working continuously for five years with an organisation is not applicable:
• his services are terminated due to his death or
• has become disabled due to an accident or a disease,
• An employer is mandated by law to pay gratuity to him or his nominee/legal heir, as the
case maybe, irrespective of the number of years of continuous service.
• In case the nominee of the employee is a minor, then the assistant labour commissioner
shall invest the money in his name in a term deposit with the State Bank of India or a
nationalised bank
RULES FOR PAYMENT
• An employer is required to specify the amount payable and mention the date of payment within 15 days of receipt
of application. The payment must be made within 30 days from the date of receipt of application.
• In such a case, the employer will accept the claim for payment of gratuity from the date such a witness or evidence
is furnished to the employer.
• An employee or nominee/ legal heir can complain to the controlling authority, i.e., the assistant labour
commissioner, in case of dispute under any of the following conditions: (Sec 11)
a) If the employer refuses to accept the application filed for the payment of gratuity;
b) If the amount of gratuity paid is less than what an employee feels should be paid;
c) If after receiving the application, the employer fails to specify the amount payable to the claimant and/or fails
to make the payable to the claimant and/or fails to make the payment within the specified time.
Any complaint must be filed with the assistant labour commissioner within 90 days from when the event occurred.
However, the commissioner can accept the complaint filed after 90 days if applicant can explain reason for the
delay.
.
CALCULATION OF GRATUITY
For employees covered under the Act
There is a formula using which the amount of gratuity payable is calculated. The formula is
based on the 15 days of last drawn salary for each completed year of service or part of thereof
in excess of six months.
The formula is as follows: (15 X last drawn salary X tenure of working) divided by 26
For employees not covered under the Act
There is no law that restricts an employer from paying gratuity to his employees even if the
organisation is not covered under the Act.
The amount of gratuity payable to the employee can be calculated based on half month's salary
for each completed year. Here also salary is inclusive of basic, dearness allowance, and
commission based on sales.
The formula is as follows: (15 X last drawn salary X tenure of working) divided by 30
EXAMPLES
Suppose A's last drawn basic pay is Rs 60,000 per month and he has worked with XYZ Ltd for 20
years and 7 months. In this case, using the formula above, gratuity will be calculated as:
(15 X 60,000 X 21)/26 = Rs. 7.26 lakh
In the above case, we have taken 21 years as tenure of service because A has worked for more than
6 months in year. Had he worked for 20 years and 5 months, 20 years of service would have been
taken into account while calculating the gratuity amount.
gratuity will be calculated as: (15 X 60,000 X 20) /30 = Rs 6 lakh
Here the number of years of service is taken on the basis of each completed year. So, since A has
worked with the company for 20 years and 7 months, his tenure will be taken as 20 and not 21.
FORFEITURE OF GRATUITY(SEC.10)
The full amount of gratuity can be forfeited if an
employee's services have been terminated due to:
a) His riotous or disorderly conduct or any other
violent act;
b) Committing an offence involving moral turpitude.
"No court decree or court order can attach the amount payable under the Gratuity
Act. This means that your gratuity will still be a payable to you even if your
employer goes bankrupt and no court order can put a stay on it."
WHETHER GRATUITY SHOULD BE PAID TO APPELLANT OR NOT ?
• Facts of the Case (Netram Sahu Vs. State of Chhattisgarh)
• The appellant was appointed as daily wager on 01.04.1986 by the Water Resources
Department of the State of Chhattisgarh and was attached to the office of SDO (E/M) Light
Machinery Tubewell & Gage Sub-Division Sakri, P.S. Charkarbhata, District Baster (CG).
• The services of the appellant were regularized on work charge establishment to the post
of Pump Operator by order dated 06.05.2008.
• After attaining the age of superannuation, the appellant retired on 30.07.2011.
• The appellant was, however, not paid the gratuity amount by the State which, according to
him, was payable to him after his retirement.
JUDGEMENT
• It was indeed the State who took 22 years to regularize the service of the appellant
and went on taking work from the appellant on payment of a meager salary of
Rs.2776/- per month for 22 long years uninterruptedly and only in the last three
years, the State started paying a salary of Rs.11,107/- per month to the appellant
• Having regularized the services of the appellant, the State had no justifiable reason to
deny the benefit of gratuity to the appellant which was his statutory right under the
Act
WHETHER GRATUITY TO BE PAID FOR THE STATED SIX YEARS OF SERVICE?
• Facts of the case (Kothari Industrial Corporation vs Appellate Authority)
• Sri Narasanna joined the petitioner's mill on 24-6-1960 and died while in service on 15-1-1987
• During this period in the years 1972, 1973, 1975, 1978, 1981 and 1982 he was absent without
obtaining leave for certain periods in each of those years
• The petitioner-management had imposed fine for such absence.
• It is thus alleged that the said Narsanna was not in continuous service for the purpose of
calculating gratuity under Section 2-A(1) of the Payment of Gratuity Act, 1972 (hereinafter
referred to as 'the Act'). It is urged that unless he had put in 240 days and actually worked for
that period with the employer, he would not be entitled to claim gratuity for that particular year
as per Section 2-A(2) of the Act.
• The petitioner, claims that the said Narsanna was entitled for gratuity for 21 years though his
total apparently was for 26 years 8 months and 26 days.
JUDGEMENT
• Section 2-A(1) as it stands now, if analysed properly shows that every service rendered by
the employee shall be continuous service for a period, even if there is interruption during
that period on account of (1) sickness, or (2) accident, or (3) leave, or (4) absence from
duty without leave except when there is break of service under orders passed as per the
Standing Orders, Rules or Regulations and/or (5) lay-off, strike or lock-out or cessation of
work not due to any fault of the employee concerned.
• Narasanna in the instant case was allegedly absent on few days without leave and though
was penalised by the employer, merely giving such punishment of imposition of fine does
not take away the case of the employees from the expression 'continuous service'. There
was obviously no order passed by the employer in accordance with the Standing Orders,
Rules or Regulations to the effect that the absence of the employees on those days or on
any of those days was to be treated as break in service.
WHETHER FORFEITURE OF GRATUITY IS AUTOMATIC ON DISMISSAL FROM SERVICE?
• Facts of the case(Union Bank of India vs. C.G. Ajay Babu)
• The respondent was an employee of the appellant-Bank. While serving as a Branch Manager,
disciplinary proceedings were initiated against him on the following charges:
• Failure to take all steps to ensure and protect the interest of the Bank.
• Failure to discharge his duties with utmost devotion, diligence, honesty and integrity.
• Doing acts unbecoming of an Officer Employee
• On the charges being duly established, the respondent was dismissed from service on
03.06.2004
• In the meanwhile, the respondent was issued a show-cause notice as to why the gratuity should
not be forfeited on account of proved misconduct involving moral turpitude. His explanation
was rejected and the gratuity was forfeited by order dated 20.04.2004
• There was no financial loss caused to the Bank
JUDGEMENT
• There is no conviction of the respondent for the misconduct which according to the
Bank is an offence involving moral turpitude. Hence, there is no justification for the
forfeiture of gratuity on the ground stated in the order dated 20.04.2004 that the
“misconduct proved against you amounts to acts involving moral turpitude”. At the
risk of redundancy, we may state that the requirement of the statute is not the proof of
misconduct of acts involving moral turpitude but the acts should constitute an offence
involving moral turpitude and such offence should be duly established in a court of
law.
WHETHER THE ORGANIZATION IS DEFINED AS AN ‘ESTABLISHMENT’ TO PAY GRATUITY?
Facts of the case(Regional Provident Fund Commissioner vs Regional Labour Commissioner - 29 June,
1984):
• The respondent was working as an Upper Division Clerk on the establishment of the Regional Provident
Fund Commissioner, Bangalore. After putting in about 9 years and 9 months of service commencing
from 20th June, 1972, he resigned from service with effect from 3rd March, 1982. Thereafter on 14th June,
1982, he made an application before the Assistant Labour Commissioner (Central) under the provisions
of the Act praying for the issue of a direction to the petitioner to pay gratuity calculated at the rates
prescribed under the Act. That application was allowed by the Assistant Labour Commissioner
(Central) by his order.
• The petitioner preferred an appeal before the appellate authority functioning under the Act; appeal was
dismissed. Aggrieved by the said order, the petitioner has presented this writ petition to the Regional
Labour Commissioner.
• ( This writ petition is by the Regional Provident Fund Commissioner, Bangalore, praying for quashing
the order of the Assistant Labour Commissioner (Central) allowing the application of the respondent
for payment of gratuity under the Payment of Gratuity Act which order has been confirmed by the
appellate authority functioning under the Act. )
• The petitioner, contended that the provisions of the Act were not applicable to the
petitioner, and submitted as follows :
The Provident Fund Organisation was a trust constituted under the provisions of the
Employees' Provident Fund (Staff and Conditions of Service) Regulations Act, 1962 by
the Central Government. Therefore it is an instrumentality of the Central Government. It has
got its own rules regulating the conditions of service of its employees. Any claim for
gratuity or other terminal benefits would be made and paid only under the regulations
regulating the conditions of service and therefore the provisions of the payment of Gratuity
Act, 1972 are not applicable.
JUDGEMENT
• Writ Petition was dismissed.
• Two things were clear :
• The Act applies to every establishment within the meaning of any law
• There is no dispute that more than ten persons are employed on the establishment of the
Provident Fund
In this State, inter alia, the three relevant laws which are in force are (i) Karnataka Shops
and Establishments Act, (ii) Payment of Wages Act, and (iii) Contract Labour Act.
The term 'establishment' is defined in the Contract Labour (Regulation and Abolition)
Act, 1970.
WHETHER INTEREST ON ACCOUNT OF DELAYED GRATUITY PAYMENT SHOULD BE PAID OR NOT?
• Facts of the case (Bimalendu Kumar Chatterjee Vs. Regional Labour Commissioner (Central))
• The petitioner was a permanent employee of the respondent BCCL and after completing 33 years 05 months in service,
he retired on 28.02.2005 from the post of Accounts Assistant while posted in the Central Hospital, Dhanbad
• The petitioner was expecting payment of his gratuity amount along with his retiral dues, but the same was not paid
promptly and after a lapse of more than nine months from the date of his retirement, on 1.12.2005 he was given two
cheques amounting to Rs. 2,89,808/-, though the cheques were drawn in the month of July 2005 and November 2005
respectively
• About seven months thereafter, on 4.7.2006, a further sum of Rs. 10,404/- being the balance amount of gratuity, was paid
to him.
• Being aggrieved by the delay of more than sixteen months from the date of his superannuation, the petitioner demanded
interest payable on the gratuity amount from his employer. Finding no response to his demand, the petitioner filed an
application under section 7(2) of Payment of Gratuity Act, 1972
• In the aforesaid proceeding, the respondent employer had filed a written statement, denying the petitioner's claim on the
ground that though, payment of the gratuity amount was delayed, but such delay was not on account of the employer.
Rather, it was on account of the petitioner's failure to produce "No Dues Certificate".
• The petitioner was continuing to remain in occupation of the employer's quarter
• he had paid penal rent for the occupation of the quarter.
JUDGEMENT
• Provision of section 7 of the Act does not stipulate that the payment of gratuity can be withheld by the employer
if the retired employee continues to remain in occupation of the employer's quarter.
• Gratuity amount shall be released to the employee in accordance with the provisions of Payment of Gratuity
Act and the employer can at best retain a sum of Rs. 50,000/- out of non-statutory dues payable to the
employees and if such non-statutory dues are not sufficient enough to employee's credit, the gratuity amount
payable to the employee concerned shall have to be deposited with the Controlling Authority under payment
of Gratuity Act, 1972, after retaining total non-statutory dues.
• Furthermore, even though, the petitioner had continued to occupy the company's quarter after his retirement,
but as per Rules of his employer, he had paid penal rent for the occupation of the quarter.
• BCCL is directed to pay interest, as specified under section 7(3)(3-A) of the Payment of Gratuity Act,
1972, on the amount of 2,89,808/- calculated from the date when the amount was payable and till the
date of final payment, made to the petitioner
WHETHER THE COMPANY CAN WITHOLD THE GRATUITY ?
Facts of the case(Travancore Plywood Industries vs Regional Joint Labour Organisation):
• The respondent was an employee of the petitione(Travancore Plywood Industries). He
retired on superannuation on June 19, 1984. Since the petitioner refused to pay gratuity
amount due to the respondent he approached the Controlling Authority under
the Payment of Gratuity Act, 1972; Where the petitioner was directed to pay the gratuity
amount.
• The petitioner contended that respondent is entitled to get the gratuity amount only on final
settlement of his account- What is treated by the petitioner - as failure to settle the account
by the respondent is the latter's failure to surrender possession of an extent of 30 cent of
land which according to the petitioner - belongs to them and has been given to the
respondent under a licence and he is bound to surrender the same as and when directed to
do so by the petitioner.
JUDGEMENT
• Under the Payment of Gratuity Act, the employer is entitled to withhold the gratuity of
an employee only if the termination of the employee is under Section 4(6) of the Act.
Here the employer has no case that the employer has terminated the service of the
employee on any of the grounds mentioned in Section 4(6) of the Act.
• The petitioner-company therefore, is not entitled to withhold the gratuity on the pretext
that the third respondent is in occupation of the land belonging to the company.
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