THE PAYMENT OF GRATUITY ACT,

1972
 STRUCTURE

• INTRODUCTION
• HISTORICAL BACKGROUND
• CONCEPT OF GRATUITY
• PREAMBLE
• ACT WITH AMENDMENTS
- IMP. DEFINITIONS
- PAYMENT OF GRATUITY
- Controlling Authority
- To whom payable
- Nomination
- Determination of gratuity and Threshold Limit
- Duties of Employer
- Role of Inspectors
- Penalties
 INTRODUCTION

• Gratuity is an old age retiral social security benefit. It is a lump sum payment made by an employer to an
employee in consideration of his past service when the employment is terminated.
• In the case of employment coming to an end due to retirement or superannuation, it enables the affected
employee to meet the new situation which quite often means a reduction in earnings or even total stoppage of
earnings.
• It was held by the Supreme Court of India in Indian Hume Pipe Co Ltd v Its Workmen 1968 AIR 1002 that the
general principle underlying a gratuity scheme is that by service over a long period the employee is entitled to
claim a certain amount as retirement benefit.
• In the case of death of an employee, it provides much needed financial assistance to the surviving members of
the family.
• Gratuity schemes, therefore, serve as instruments of social security and their significance in a developing
country like India where the general income level is low cannot be over emphasized.
 BACKGROUND OF THE ACT

• Formerly the scheme of gratuity was introduced in those establishments only where the employers were so kind and generous to the workers or there was an agreement
between the employers and the workers.
• This scheme was confined to the particular establishments and even within those establishments, to certain categories of staff.
• There was no general legislation for the payment of Gratuity to all industrial workers.
• In due course of time, it was felt the workers should get gratuity as a right in return of their long dedicated services to the industry.
• Industrial Tribunals and Supreme Courts dealt with the disputes on the subject and their awards and decisions brought the revolutionary changes in Social Security
Legislations in Indian industrial sector.
• In the case of Delhi Cloth and General Mills Co. Ltd. Vs their workers 36 FJR 247 (1968), the Supreme Court held that the object of providing a gratuity scheme is to
provide a retiring benefit to the workman who have rendered long and unblemished service to the employer and thereby contributed to the prosperity of the employer.
• In the Working Journalists (Conditions of Service) & Miscellaneous Provisions Act, 1955, the provision to pay the gratuity to the working journalists was made.
• After few years, the Government of Kerala enacted the Kerala Industrial Employees Payment of Gratuity Act, 1970 making gratuity a statutory right of the employees.
• West Bengal Government enacted the West Bengal Employees Payment of Gratuity Act, 1971 relating to the subject.
• The other states were also thinking to legislate such enactments. Thus, it was felt that there should be an uniform central legislation for the whole country instead of
state legislations for each and every separate states.
• The whole matter was discussed in the Labor Ministers’ Conference held 24th and the August 1971 and thereafter in the Indian Labor Conference held on 22ndand
23rd Oct., 1971 it was agreed that the central legislation on the payment of gratuity should be undertaken.
• Accordingly, the payments of Gratuity Act, 1972 was enacted, largely based on the West Bengal legislation, which was come into force on 16th September, 1972.
• The Act has been further amended many times say in 1984, 1987, 2010 and the latest in 2018.
 CONCEPT OF GRATUITY

• Gratuity is a lump sum payment made by the employer as a mark of recognition of the service rendered by the employee
when he retires or leaves service.
• Gratuity and Bonus- Gratuity is a claim for retirement benefit whereas a bonus is based on the availability of surplus out
of the profit received each year- Express Newspaper v. Union of India (1959) SCR 12
• Gratuity and Pension- Common features- Gratuity is a lump some payment whereas pension is a periodic payment of a
stated amount.
• Gratuity and Provident fund- Both are retiral benefits and both involve lump some benefit, but gratuity is earned only by
rendering services. In provident fund, the worker contributes a part of his wages.
• Gratuity and Retrenchment Compensation- Both can be asked simultaneously.
 PREAMBLE OF THE ACT, 1972

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.
 EXTENT AND SCOPE

Application of the Act to an employed person depends on two factors. Firstly, he should be employed in an establishment to which the Act
applies. Secondly, he should be an “employee” as defined in Section 2(e).
According to Section 1(3), the Act applies 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.
• In exercise of the powers conferred by clause (c), the Central Government has specified Motor transport undertakings, Clubs, Chambers of
Commerce and Industry, Inland Water Transport establishments, Solicitors offices, Local bodies, Educational Institutions, Societies, Trusts
and Circus industry, in which 10 or more persons are employed or were employed on any day of the preceding 12 months, as classes of
establishments to which the Act shall apply.
• A shop or establishment to which the Act has become applicable once, continues to be governed by it, even if the number of persons
employed therein at any time after it has become so applicable falls below ten. (Section 3A)
 IMP. DEFINITIONS

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. [Section 2(a)]
• 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 and any dispute connected with the payment or nonpayment of gratuity falls within the jurisdiction of the
‘Controlling Authority’ and the ‘Appellate Authority’ appointed by the Central Government under Sections 3 and 7.
• A Company Secretary should know whether the ‘appropriate Government’ in relation to his establishment is the Central Government or
the State Government. He should also find out who has been notified as the ‘Controlling Authority’ and also who is the ‘Appellate
Authority’.
• It may be noted that any request for exemption under Section 5 of the Act is also to be addressed to the ‘appropriate Government’. It is,
therefore, necessary to be clear on this point.
 CONTINUED

(b) “completed year of service” means continuous service for one year;
c)“continuous service” means continuous service as defined in section 2A;]
(d) “controlling authority” means an authority appointed by the appropriate Government under
section 3;
 EMPLOYEE: SECTION 2(E)

• “Employee” means any person (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.
• In Ahmedabad Private Primary Teachers’ Association v. Administrator Officers & Others Petition was filed by a teacher employed in school
run by Ahmedabad Municipal Corporation claiming for the payment of gratuity before the Hon’ble High Court of Gujarat. But it was dismissed
by the Hon’ble High Court holding that teachers as a class not being covered by definition of “employee” under Section 2 (e), were disentitled
to claim gratuity.It not only rejected the claim of the teacher for payment of gratuity but also has decided an important question of law against
the teachers as a class that they do not fall within the definition of “employee” as contained in Section 2(e) of the Act and therefore cannot raise
any claim to gratuity under the Act and therefore, Appeal was preferred before the Hon’ble Supreme Court of India. The Hon’ble Apex Court
held that on plain construction of words and expression used in definition clause 2 (e) of the Act teachers who are mainly employed for
imparting education are not to be covered for extending gratuity benefits under the Act.
• The Hon’ble Apex Court pointed out that a trained teacher is not described in industrial field or service jurisprudence as skilled employee and
“semi-skilled” and “unskilled” are not understood in educational establishments as describing nature of job of untrained teachers. The Hon’ble
Court further held that teachers although engaged in very noble profession of educating our younger 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. The judgment also mentioned that, 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 a
separate legislation for them in this regard. Thus the Honorable Supreme court held that teachers are not entitled to gratuity benefit under the
Payment of Gratuity Act, 1972 at the end of their service.
• This showed the ambiguity in the definition of the term “employee” in the Act. The typical question which, in the above case, arose before
the court was that does the expression “persons employed” include teaching as well as nonteaching staff of the educational institution?
 AMENDMENT IN SECTION 2(E)

• Many private institutions do not provide proper salary and other benefits to the teachers, thereby teachers are exploited vulnerably in some education
institutions. Due to this reason, there was a proposal to bring in some changes in the Act so that teachers in private schools can also get gratuity.
• Accordingly, a Bill, The Payment of Gratuity (Amendment) Bill, 2006, was introduced in the Raja Sabah for the same. The object and reasons of this
amendment is that the definition of “employee” as in Section 2 (e) of the Act covers any establishment, factory, mine, oilfield, plantation, port, railway
company or shop to do any skilled, semiskilled, or unskilled, manual, supervisory, technical or clerical work and not those performing teaching jobs in
schools, colleges or universities.
• In order to extend benefit of Gratuity to the teaching community, specific amendments to the provisions of the Act have become necessary to bring the
schools, colleges and universities and those performing teaching jobs within the purview of the Act.
• Accordingly a new Bill of Payment of Gratuity (Amendment) Bill, 2009 having retrospective effect was introduced in the Lok Sabha on 24th February, 2009.
However, due to dissolution of the fourteenth Lok Sabha, the said Bill was lapsed.
• Therefore, another Bill of Payment of Gratuity (Amendment) Bill, 2009 was produced in the Lok Sabha on 12th November, 2009 which the Lok Sabha has
passed.
• The Payment of Gratuity(Amendment) Bill, which aims at amending definition of employees in the 1972 legislation for covering teachers in private
institutions with retrospective effect from 3rd April, 1997, was passed in the Rajya Sabha. It was approved by Lok Sabha on 16th December, 2009.
• Accordingly Section 2(e) as amended by the Payment of Gratuity (Amendment) Act, 2009 defines “employee "as any person (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. With the removal of ceiling on wage every employee will become eligible for gratuity, irrespective of his wage level w.e.f. 24th May, 1994.
 BIRLA INSTITUTE OF TECHNOLOGY VS THE STATE OF
JHARKHAND ON 7 MARCH, 2019

• BIT filed an appeal before the appellate authority under the PG Act, followed by writ petition before the High Court of Jharkhand and further
followed by Letters Patent Appeal before the division bench of the High Court of Jharkhand (against the order passed by the Single Judge
dismissing the writ petition).
• Eventually, BIT filed an appeal before the Hon'ble Supreme Court against the final judgment and order dated April 2, 2008 passed by the High
Court of Jharkhand dismissing the Letters Patent Appeal filed by BIT.
• The Hon'ble Supreme Court after hearing the arguments opined that the issue involved in this appeal remains no longer res integra and has been
decided by the court in the APPTA Case.
• The question which arose for consideration in APPTA Case was "whether 'Teacher' could be regarded as an 'employee' under Section 2(e) of the
Act and, if so, whether he/she is entitled to claim gratuity amount from his employer in accordance with the provisions of the Act" and the Hon'ble
Supreme Court had in that case concluded that in view of the words and expression used in the definition of 'employee' under clause 2(e) of the PG
Act, 'teachers' who are mainly employed for imparting education are not intended to be covered for extending gratuity benefits under the PG Act.
• Interestingly, on January 9, 2019, the Hon’ble Supreme Court, suo moto listed the matter and stayed the operation of its judgment in the BIT Case
stating that the court had not been apprised of the retrospective amendment to the definition of “employee” in the PG Act vide the Payment of
Gratuity (Amendment) Act, 2009 (“PG Amendment Act”).
• The Hon’ble Supreme Court observed that: “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 dated 07.01.2019 passed in this
appeal.
 C O N T I N U E D

(f) “employer” means, in relation to any establishment, factory, mine, oilfield, plantation, port, railway company or shop—
• belonging to, or under the control of, the Central Government or a State Government a person or authority appointed by
the appropriate Government for the supervision and control of employees, or where no person or authority has been so
appointed, the head of the Ministry or Department concerned,
• belonging to, or under the control of, any local authority, the person appointed by such authority for the supervision and
control of employees or where no person has been so appointed, the chief executive officer of the local authority,
• in any other case, the person, who, or the authority which, has the ultimate control over the affairs of the establishment,
factory, mine, oilfield, plantation, port, railway company or shop, and where the said affairs are entrusted to any other
person, whether called a manager, managing director or by any other name, such person;
 C O N T I N U E D

• (g) “factory”, has the meaning assigned to it in clause (m) of section 2 of the Factories Act, 1948 (63 of 1948);
• (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  7 [and the dependent parents of his wife
and the widow] and children of his predeceased son, if any,(ii) in the case of a female employee, herself, her husband, her children, whether married or
unmarried, her dependent parents and the dependent parents of her husband and the widow and children of her predeceased son, if any;  8 [***] 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;
• (i) “major port” has the meaning assigned to it in clause (8) of section 3 of the Indian Ports Act, 1908 (15 of 1908);
• (j) “mine” has the meaning assigned to it in clause (j) of sub-section (1) of section 2 of the Mines Act, 1952 (35 of 1952);
• (k) “notification” means a notification published in the Official Gazette;
• (l) “oilfield” has the meaning assigned to it in clause (e) of section 3 of the Oilfields (Regulation and Development) Act, 1948 (53 of 1948);
• (m) “plantation” has the meaning assigned to it in clause (f) of section 2 of the Plantations Labour Act, 1951 (69 of 1951);
• (n) “port” has the meaning assigned to it in clause (4) of section 3 of the Indian Ports Act, 1908 (15 of 1908);
• (o) “prescribed” means prescribed by rules made under this Act;
• (p) “railway company” has the meaning assigned to it in clause (5) of section 3 of the Indian Railways Act, 1890 (9 of 1890);
• (q) “retirement” means termination of the service of an employee otherwise than on superannuation;
• 9 [(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
as the age on the attainment of which the employer shall vacate the employment;]
• (s) “wages” means all emoluments which are earned by an employee while on duty or on leave in accordance with the terms and conditions of his
employments 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.
 APPLICABILITY OF THE ACT

Applicability of Payment of Gratuity Act: – Application depends on the following

criteria:
1) He should be employed in an establishment to which the act applies.
2) He is an employee as defined in section 2 (e).
3) Continuity in service.
 CONTROLLING AUTHORITY

Section 3.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 authorities may be appointed for different areas.

Section 7(7) provides for an appeal being preferred against an order of the Controlling Authority to the appropriate Government or such other
authority as may be specified by the appropriate Government in this behalf.

• 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 and any dispute connected with the payment or nonpayment of gratuity falls within the jurisdiction of the ‘Controlling
Authority’ and the ‘Appellate Authority’ appointed by the Central Government under Sections 3 and 7.

• A Company Secretary should know whether the ‘appropriate Government’ in relation to his establishment is the Central Government or the
State Government. He should also find out who has been notified as the ‘Controlling Authority’ and also who is the ‘Appellate Authority’. It
may be noted that any request for exemption under Section 5 of the Act is also to be addressed to the ‘appropriate Government’. It is,
therefore, necessary to be clear on this point.
 CONDITION- S.2A

According to Section 2A, 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 orders,
rules or regulations governing the employees of the establishment), layoff, 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
Orders) Act, 1946, or under the Industrial Disputes Act, 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 total period of such maternity leave does not
exceed twelve weeks.
(3) Where an employee, employed in a seasonal establishment, is not in continues 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.
Service is not continuous, in case of legal termination of service and subsequent re-employment.
• Gratuity cannot be claimed on the basis of continuous service on being taken
back in service after break in service of one and a half year on account of
termination of service for taking part in an illegal strike, where the employee
had accepted gratuity for previous service and later withdrawn from the
industrial dispute (Baluram v. Phoenix Mills Ltd., 1999 CLA Bom.19).
 DETERMINATION OF GRATUITY (SEC.7)

• 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
Here, last drawn salary means basic salary, dearness allowance and commission
received on sales.
 TIME WHEN GRATUITY IS PAYABLE

According to Section 4(1) of the Payment of Gratuity Act, 1972, 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.
Note: The completion of continuous service of five years is not necessary where the termination of the employment of any
employee is due to death or disablement.
Further, the period of continuous service is to be reckoned from the date of employment and not from the date of commencement
of this A. Mere absence from duty without leave can not be said to result in breach of continuity of service for the purpose of this
Act. [Kothari Industrial Corporation v. Appellate Authority, 1998 Lab IC, 1149 (AP)]
 ESSENTIALS

TO WHOM IS GRATUITY PAYABLE?

• It is payable normally to the employee himself. However, in the case of death of the employee, it shall be paid to
• his nominee and if no nomination has been made, to his heirs and where any such nominees or heirs is a minor,
• the share of such minor, shall be deposited with the controlling authority who shall invest the same for the
• benefit of such minor in such bank or other financial institution, as may be prescribed, until such minor attains
• majority.
Amount of Gratuity Payable
• Gratuity is calculated on the basis of continuous service as defined above i.e. for every completed year of
• service or part in excess of six months, at the rate of fifteen days wages last drawn. The maximum amount of
• gratuity allowed under the Act is Rs. 10 lakh. The ceiling on the amount of gratuity from Rs.3.50 lakh to Rs.10
• lakh has been enhanced by the Payment of Gratuity (Amendment) Act, 2010.
• However in case any gratuity received by persons covered under the Payment of Gratuity Act, 1972 the gratuity limit has
been  increased from 10 lacs to 20 Lacs wef 29.03.2018 through notification S.O. 1420 (E) dated 29.03.2018
• Nomination
• An employee covered by the Act is required to make nomination in accordance with the Rules under the Act for the purpose
of payment of gratuity in the event of his death. The rules also provide for change in nomination.
 FORFEITURE OF GRATUITY

The Act deals with this issue in two parts.

• Section 4(6)(a) provides that the gratuity of an employee whose services have been terminated for any act of willful omission or
negligence causing any damage or loss to, or destruction of, property belonging to the employer, gratuity shall be forfeited to the extent
of the damage or loss or caused.
• The right of forfeiture is limited to the extent of damage. In absence of proof of the extent of damage, the right of forfeiture is not
available (LLJ- II-1996-515 MP).
• Section 4(6)(b) deals with a case where the services of an employee have been terminated: (a) for riotous and disorderly conduct or any
other act of violence on his part, or
• (b) for any act which constitutes an offence involving moral turpitude provided that such offence is committed by him in the course of
his employment.
• In such cases the gratuity payable to the employee may be wholly or partially forfeited. Where the service has not been terminated on
any of the above grounds, the employer cannot withhold gratuity due to the employee.
• Where the land of the employer is not vacated by the employee, gratuity cannot be withheld (Travancore Plywood Ind. v. Regional JLC,
Kerala, 1996 LLJ-II-14 Ker.).
• Assignment of gratuity is prohibited, it cannot be withheld for non vacation of service quarters by retiring employees ( Air India v.
Authority under the Act, 1999 CLA 34 Bom. 66).
 PRE-CONDITIONS FOR FORFEITURE

In the matter of Jaswant Singh Gill v. Bharat Cooking Coal Limited and Others [2007 (1) SCC 663], the Supreme Court of India laid down the test
for the forfeiture of gratuity. The bench observed that for forfeiting any amount from the gratuity two things are imperative, namely, (i) termination
of services for any of the causes enumerated in sub-section (6) of Section 4 of the Act and (ii) pecuniary loss. The courts in India have time and again
clarified that gratuity of an employee can be withheld only in case of his dismissal and not otherwise [K.C. Mathew v. Plantation Corporation of
Kerala Limited (2000) LIC 1519].
Additionally, the courts in India while dealing with the subject of forfeiture of gratuity [under Section 4 (6) of the Act] have laid down a few pre-
conditions for the employers which should be satisfied prior to the employer exercising the rights granted under the said provision, namely – (i) the
damages suffered by the employer should be quantified and proved [Permali Wallance Ltd. v. State of M.P., (1996 MPLJ 262)]; (ii) principles of
natural justice must be adhered to and the concerned employee must be given an opportunity of being heard [Permali Wallance Ltd. v. State of M.P.,
(1996 MPLJ 262)]; and (iii) the employer must pass an order to forfeit the gratuity (or any part thereof) pursuant to the proceedings carried out
[Dhanalakshmi Bank Limited v. Ramachandran – 2012-IV-LLJ-235 (Kar.)].
Imposition of Penalty for wrongfully withholding/ forfeiture of gratuity
Supreme Court of India in R. Kapur v. Director of Inspection (Painting and Publication) Income Tax and Anr. [MANU/SC/0873/1994] while dealing
with forfeiture of gratuity on account of a pending civil dispute imposed a penalty of 18 (eighteen) percent on the employer and observed that death
cum retirement gratuity cannot be withheld merely because the claim for damages is pending. In the said case damages were claimed by the
employer for unauthorized occupation (by the employee) of official occupation.
The Field General Manager vs The Appellate Authority (4 February, 2020)-The amount of loss has to be quantified and such loss should have
been ascertained, also by establishing that such loss was due to the misconduct of the employee, which is an offence involving moral turpitude. 
 APPLICATION FOR PAYMENT OF GRATUITY

• Section 7(1) lays down that a person who is eligible for payment of gratuity under the Act or any person authorized, in
writing, to act on his behalf shall send a written application to the employer.
• Rule 7 of the Payment of Gratuity (Central) Rules, 1972, provides that the application shall be made ordinarily within 30
days from the date gratuity becomes payable. The rules also provides that where the date of superannuation or retirement of
an employee is known, the employee may apply to the employer before 30 days of the date of superannuation or retirement.
• A nominee of an employee who is eligible for payment of gratuity in the case of death of the employee shall apply to the
employee ordinarily within 30 days from the date of the gratuity becomes payable to him. [Rule 7(2)]
• Although the forms in which the applications are to be made have been laid down, an application on plain paper with
relevant particulars is also accepted.
• The application may be presented to the employer either by personal service or be registered post with acknowledgement
due. An application for payment of gratuity filed after the period of 30 days mentioned above shall also be entertained by the
employer if the application adduces sufficient cause for the delay in preferring him claim. Any dispute in this regard shall be
referred to the Controlling Authority for his decision.
 E M P LO Y E R ’ S D U T Y TO D E T E RM I N E A N D PAY
G R AT U I T Y

• Section 7(2) lays down that as soon as gratuity becomes payable the employer shall, whether the application 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.
• Section 7(3) of the Act says that the employer shall arrange to pay the amount of gratuity within thirty days from the date of
its becoming payable to the person to whom it is payable.
• Section 7(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 the rate of 10 per cent per annum:
• 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.
 CONTINUED

• If the claim for gratuity is not found admissible, the employer shall issue a notice in the prescribed form to the
applicant employee, nominee or legal heir, as the case may be, specifying reasons why the claim for gratuity is
not considered admissible.
• A copy of the notice shall be endorsed to the Controlling Authority. If the disputes relates as to the amount of
gratuity payable, the employer shall deposit with the Controlling Authority such amount as he admits to be
payable by him. According to Section 7(4)(e), the Controlling Authority shall pay the amount of deposit as soon
as may be after a deposit is made
• (i) to the applicant where he is the employee; or
• (ii) where the applicant is not the employee, to the 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.
 RECOVERY OF GRATUTIY

• Section 8 provides that if the gratuity payable under the Act is not paid by the employer within the prescribed time, the Controlling
Authority shall, on an application made to it in this behalf by the aggrieved person, issue a certificate for that amount to the Collector, who
shall recover the same together with the compound interest thereon at such rate as the Central Government may be notification, specify,
from the date of expiry of the prescribed time, as arrears of land revenue and pay the same to the person entitled thereto:
• “Provided that the controlling authority shall, before issuing a certificate under this section, give the employer a reasonable opportunity of
showing cause against the issue of such certificate:
• Provided further that the amount of interest payable under this section shall, in no case, exceed the amount of gratuity payable under this
Act”.
• Protection of Gratuity [ Sec.13]
• Gratuity has been exempted from attachment in execution of any decree or order of any Civil, Revenue or Criminal Court. This relief is
aimed at providing payment of gratuity to the person or persons entitled there to without being affected by any order of attachment by an
decree of any Court.
 ROLE OF INSPECTORS

The Payment of Gratuity (Amendment) Act, 1984 has added two new Sections i.e. Sec, 7-A and Sec. 7-B to the original Act dealing with the appointment of Inspectors for the
purpose of the Act and their powers.
Appointment of Inspectors [Sec. 7-A]: -The appropriate Government may, by notification, appoint as many Inspectors as it deems fit, for the purpose the Act. The appropriate
Government may by general or special order, define the area to which the authority of an Inspector so appointed shall extend.
Where two or more Inspectors are appointed for the same area, it may also define by such order, the distribution or allocation of work to be performed by them under the Act. Every
inspector appointed under the Act shall be deemed to be a public servant, within the meaning of the Indian Penal Code.
Powers of Inspectors:
Subject to any rules made by the appropriate Government under the Act, an Inspector may, for the purpose of ascertaining whether any of the provisions of the act or the conditions,
if any, of the exemptions granted there under, have been complied with, exercise all or any of the powers given below –
1. Require an employer to furnish any information as he may consider necessary.
2. enter and inspect at all reasonable hours, with such assistants being person in service of the Government, or local or any public authority, as he thinks fit, any premises or place in
factory, mine, oilfield, plantation, port, railway company, shop and other establishment to which this Act applies for the purpose of examining any register, record or notice or, Other
documents required to be kept or exhibited under this Act or the rules made there under, or otherwise kept or exhibited in relation to the employment of any person or the payment of
gratuity to the employees. He may require the production of any register record or notice for inspection.
3. Examine with respect to any matter relevant to any of the purpose mentioned above, the employer of any person whom he finds in such premises or place, and who, he has
sufficient cause to believe, is an employee employed therein;
4. make copies of, or take extracts from, any register, record, notice or other relevant documents, where he has reason to believe that any offence under the Act has been committed
by the employer, search or seizure under this Act, as they apply to any search and seize with the assistance as he thinks fit, any register, record, notice or document, as he considers
relevant in respect of that offence;
5. Exercise such other powers as may be prescribed. Any person required by an Inspector to produce any register, record, notice or other document or to give any information, he
shall be legally bound to do so within the meaning of Sees, 175 and 176 of the Indian Penal Code. The provisions of the Code of Criminal Procedure so far as may be shall apply to
any search and seizure made under the authority of a warrant issued under Sec. 94 of that Code.
 PENALTIES

• Section: 9
• (1) Whoever, for the purpose of avoiding any payment to be made by himself under this Act or of enabling any other person
to avoid such payment, knowingly makes or causes to be made any false statement or false representation shall be
punishable with imprisonment for a term which may extend to six months, or with fine which may extend to ten thousand
rupees or with both.
• (2) An employer who contravenes, or makes default in complying with, any of the provisions of this Act or any rule or
order made there under shall be punishable with imprisonment for a term which shall not be less than three months but
which may extend to one year, or with fine which shall not be less than ten thousand rupees but which may extend to
twenty thousand rupees, or with both
• Provided that where the offence relates to non-payment of any gratuity payable under this Act, the employer shall be
punishable with imprisonment for a term which shall not be less than [Six months but which may extend to two years]
unless the court trying the offence, for reasons to be recorded by it in writing, is of opinion that a lesser term of
imprisonment or the imposition 01; a fine would meet the ends of justice.