PAYMENT OF GRATUITY – SOME ISSUES

[Mr. M. GOVINDARAJAN]

The Payment of Gratuity Act, 1972 provides for paying gratuity to retired/resigned employees.  The Act and the rules provide the procedure for the payment of gratuity.   In this article issues arised in this regard are discussed.

Adjustment against loan taken

The gratuity payable to the employee is fully protected.  It is free from court attachment.  In ‘Yada Laxmi V. A.P. State Co-operative Bank, Hyderabad’- 2005 (12) TMI 568 - ANDHRA PRADESH HIGH COURT the High Court held that the employer bank was duty bound to pay the amount of gratuity under the Payment of Gratuity Act to be calculated as per the formula given in the said Act itself as an employee cannot pledge or permit adjustment of the amount of gratuity before it had accrued to him.  The provisions of the Act as well as Section 60 of CPC were amended to keep the entire amount of gratuity out of the purview of the attachment or other adjustments and when the law prohibits attachment or adjustments of gratuity, the bank is not entitled to adjust the same towards repayment of loans etc.,

Notice pay cannot be deducted

In case of resignation by the employee he is to give 3 months’ notice to his employer indicating his intention to resign from his present job.  If the employer wants to terminate the service of an employee before his tenure period, he is to give 3 months’ notice or recover the three months salary in lieu of notice.  Such amount could not be deducted from the eligible gratuity payable to the employee who resigns from the organization.   In ‘Fertilizers and Chemicals, Travancore Limited V. Sebastian K. John’ – 2014 LLT 72  the employee went on leave for three months which were sanctioned by the management.   Later he extended the leave for a period of two years stating that he is to join a job in United Arab Emirates.   The employer took cognizance that the employer had gone to foreign without consent of the employer, which is violation of the Rules of the employer’s company and initiated disciplinary proceedings, which were conducted in the absence of the employee, since he did not respond to the notice.  The employer deducted three months notice pay from the gratuity amount and leave encashment payable to the employee.   The employee challenged the same.  The High Court held that Section 4(6) read with Section 13 prohibits any recovery from the gratuity except as provided under the provisions of the Act.  An employer cannot be permitted to recover the amount towards notice pay from the gratuity payable to an employee.

Attachment

In ‘Chrisostom V. Federal Bank Limited’ – 1993 (I) LLJ 422 (ker HC) the High Court held that where the gratuity is payable under a scheme, it squarely comes within the purview of the Payment of Gratuity  Act,1972 and therefore, the immunity of Section 13 of the Act will be available.  Section 60(1)(g) of the CPC also provides that gratuity payable to an employee cannot be attached and the Civil Court cannot grant injunction restraining the employer from payment of gratuity to an employee.

In ‘Ramwati V. Krishna Gopal’ – 1987 (10) TMI 373 - DELHI HIGH COURT it was held that if the gratuity is payable to the employee then it is not liable to attachment.  But if the employee is dead, obviously the gratuity cannot be deemed to be payable to the employee.   If the said gratuity becomes payable to the heirs of the employees, obviously the same becomes attachable in the hands of the employer as the employer is not legally bound to pay the said gratuity to the legal heirs of the employee.

Whether Director of a company entitled to gratuity?

The definition of the term ‘employee’ does not spell out as to whether the director of a company is an employee or not.   It depends upon the functions of the Director.  If he performing his duties for the company then he can come within the definition.  In ‘Monitron Securities (p) Limited V. Mukundlal Khushalchand Dhavan’ – 2000 (12) TMI 902 - GUJARAT HIGH COURT I an employee had joined as a Manager on 1.4.76 and retired voluntarily as a director of the company on 30.06.1996.  The company admitted liability for gratuity for the period up to1.4.84 when he worked as Branch Manager and General Manager and not for subsequent period when he worked as Director.  The Controlling Authority and Appellate Authority granted the whole claim after observing that the designation of the respondent as a ‘Director’ did not put him in overall control of the company.  There was no substance in the petition challenging orders of authorities below.   Looking to the reasoning given by both the Authorities to the effect that he had no ultimate control over the management and considering the definition of employer and employee, the view taken by the Authorities below is absolutely correct and no interference of the High Court is required.

Entitlement of Government servants under this Act

The Government servants are not covered under this Act.  The Supreme Court observed that Section 2(3) of the Payment of Gratuity Act, 1972 defines, employee wherein it is specifically provided that the ‘employee’ does not include any such person who holds a post under Central Government or a State Government and is governed by any other Act or Rules providing for gratuity.  Section 2(e) thus takes out from the purview of the said Act a person who holds inter alia post under Central Government and whose terms and conditions of services are governed by the Act or Rules providing for gratuity.

Gratuity payable towards surety?

The payment of gratuity is not absolute right since it can be forfeited on dismissal of the workman as per the provisions of Section 4(6) of the Act.  Even otherwise gratuity canoe b attached against a decree as passed by the Civil Court.  Hence such a surety will not be tenable.

Financial difficulties of employer

In ‘U.P. State Sugar Corporation Unit, Munerwa V. Ram Nain Singh’ – 1999 LLR 41 (All HC) it was held that the gratuity of employees must be paid irrespective of financial capacity of the employer or even non availability of finances.

Payment of gratuity if there is no nomination

In case of death of an employee, the gratuity payable to the employee shall be paid to his nominee.  If no nomination has been made the same shall be payable to heirs and where any such nominee or heir is a minor, the share of such minor shall be deposited with the Controlling authority who shall invest the same for the benefit of such minor in such bank or other financial institution, as may be prescribed, until such minor attains majority.

Gratuity to retrenched employee

Gratuity is payable to an employee on termination of his employment under Section 2(oo) of Industrial Disputes Act.  The definition is framed in widest terms, ‘except for superannuation’, any termination of service would amount to retrenchment for the purpose of the Act.  In ‘State of Punjab V. Labor Court, Jullundur,’ – 1979 (10) TMI 222 - SUPREME COURT it was held that retrenchment of the employees will fall within the scope of Section 4(1) of the Act and a retrenched employee will be entitled to gratuity.

Re-employed employee after superannuation

In ‘Jeewanlal Limited V. Controlling Authority’ – 1981 (6) TMI 129 - MADRAS HIGH COURT it was held that if an employee having been superannuated is reemployed by the employer without any break in service, he will be eligible for payment of gratuity.