PAYMENT OF ENHANCED GRATITUITY.

[Mr. M. GOVINDARAJAN]

The Payment of Gratuity Act, 1972 deals with the payment of gratuity to en employee on the termination of his employment after he has rendered continuous service for not less than 5 years-

• On his superannuation, or
• On his retirement or resignation; or
• On his death or disablement due to accident or disease

Sec. 4(3) of the Act provides that the amount of gratuity payable to an employee shall not exceed Rs.10 lakhs. Section 4(5) of the Act provides that 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.

Thus the Act provides for payment of enhanced gratuity or better terms of gratuity than provided in the Act.

In ‘Digambar Yeshwantrao Watane V. Agricultural Produce Market Committee, Achalpur’ – (2004) 3 CLR 161 the High Court held that the Gratuity Act provides 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 15 days wages based on the rate of wages last drawn by the employee concerned.   The amount of gratuity payable to an employee shall not exceed the amount prescribed in the Act.   At the relevant time, when the petitioner opted for voluntary retirement the said amount was Rs.50,000/- Sectin4(5) provides that 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.   Thus it can be seen that the term used by the legislature is not given any restrictive meaning.  Even otherwise it is a settled law that when the provisions of beneficial legislation are interpreted, they have to be given the liberal meaning.

In ‘Steel Authority of India V. Regional Labor Commissioner (Central)’ – 1995-I-LLJ-1007 the Division Bench of Orissa High Court held as that Section 4(5) provides that nothing in Section 4 shall affect the right of an employee to receive better terms of gratuity under any award or agreement or contract with the employer. It means that if under any award or agreement or contract with the employer higher amount of gratuity is available, Section 4 cannot stand on the way of the employee’s right in getting such favourable terms. taxmanagementindia.com

In ‘Ethiopian Airlines, Mumbai V. A.D. Noel Henriques, Mumbai and another’ – 202-III-LLJ-801 (Bom) the respondent was an employee of the petitioner. He joined service on 01.11.1972 and retired on attaining superannuation on 15.12.1996 as a Sales Manager and that before him only four people had retired. Out of the four employees two employees were given higher gratuity above the statutory ceiling limit. Vide letter dated 29.01.1992 the management informed the  respondent that the Management has approved a General Salary Adjustment for Bombay based staff with effect from 01.12.1991.  He was given 20% increased in his salary and the newly added benefits are made in recognition of his hard work and also to serve as an incentive to do more with added zeal and enthusiasm.  As per this letter the gratuity is payable 15 days salary per year on 26 days month basis (New). 

The respondent employee was paid gratuity as per the provisions of the Act. The same was challenged before the Controlling Authority by the respondent.  The Controlling Authority held that the respondent employee was entitled to gratuity of Rs.2,59,409.49. At the relevant time the ceiling for the payment of gratuity is Rs.1 lakh. The order of Controlling Authority was confirmed by the Appellate Authority. Against this order the employer filed this petition before the High Court.   The employer put forth the following arguments before the High Court:

• The respondent employee was governed by the Personnel Policy of the company which inter alia states that the payment of gratuity to the employees would be governed by the Payment of Gratuity Act, 1972;
• The respondent employee was not entitled to gratuity over and above the ceiling limit as specified in Section 4(3) of the Act;
• The word ‘New’ in parenthesis in Clause 7 of the letter dated 29.01.1992 is indicative of applicability of the ceiling limit as when ‘new’ amendments are brought into force in he said Act;
• The higher amount of gratuity paid to two retired employees due to the mistake committed by their Chartered Accountant.

The respondent employee put forth the following arguments:

• The letter dated 29.1.1992 set out the terms of contract of employment between the petitioner company and him that would govern the quantum of entitlement of gratuity;
• The letter would constitute an agreement between the parties and since the terms set out in the said letter were better than what has been statutorily provided, having regard to Section 4(5) of the Act which saves the right of an employee to receive the better terms of gratuity, he was entitled gratuity amount computed on the basis of the said letter.

The High Court held that the terms and conditions mentioned in the letter dated 29.01.1992 clearly formed a ‘contract of service’ which reflects the understanding between the parties and would prevail over the personnel policy of the petitioner company.  There is no qualification in this letter that the gratuity is subject to ceiling prescribed in the Act.  The respondent employee would therefore be entitled to gratuity as set out in this letter which was posterior to and which contained better terms than provided in the Personnel Policy as revised in the year 1988.  The High Court did not accept the contentions of the employer for interpreting the word ‘new’ given in the bracket in absence of any pleading and evidence having been led by the petitioner company in this regard.  Further the High Court did not accept the contention of the petitioner company that the higher rate of gratuity given to two employees is by mistake of Chartered Accountant.  The Court held that it required to be noted that the said Chartered Accountant has not been examined as a witness nor is such plea of mistake found in the written statement filed on behalf of the petitioner company. 

The High Court found no justification to disturb the well-reasoned order of the Appellate Authority which has confirmed the finding of the Lower Authority and the impugned order does not warrant any interference at the hands of the Court.