The Concept of Gratuity:-
Ahmedabad Pvt. Primary Teachers’ Association v. Administrative Officer reported in AIR 2004 SC 1426. Para: 6 and 7 of the said decision read as under.
“6. The Act is a piece of social welfare legislation and deals with the payment of gratuity which is a kind of retiral benefit like pension, provident fund etc. As has been explained in the concurring opinion of one of the learned Judges of the High Court `gratuity in its etymological sense is a gift, especially for services rendered, or return for favours received.’ It has now been universally recognised that all persons in society need protection against loss of income due to unemployment arising out of incapacity to work due to invalidity, old age etc. For the wage-earning population, security of income, when the worker becomes old or infirm, is of consequential importance. The provisions contained in the Act are in the nature of social security measures like employment insurance, provident fund and pension. The Act accepts, in principle, compulsory payment of gratuity as a social security measure to wage-earning population in industries, factories and establishments.
7. Thus, the main purpose and concept of gratuity is to help the workman after retirement, whether, retirement is a result of rules of superannuation, or physical disablement or impairment of vital part of the body. The expression `gratuity’ itself suggest that it is a gratuitous payment given to an employee on discharge, superannuation or death. Gratuity is an amount paid unconnected with any consideration and not resting upon it, and has to be considered as something given freely, voluntarily or without recompense. It is sort of financial assistance to tide over post-retiral hardships and inconveniences.”
Payment of gratuity.– (1) 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:
Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement:
(5) 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.
(6) Notwithstanding anything contained in subsection (1),
(a) the gratuity of an employee, whose services have been terminated for any act, wilful omission or negligence causing any damage or loss to, or destruction of, property belonging to the employer shall be forfeited to the extent of the damage or loss so caused;
(b) the gratuity payable to an employee [may be wholly or partially forfeited] –
(i) if the services of such employee have been terminated for his riotous or disorderly conduct or any other act of violence on his part, or
(ii) if the services of such employee have been terminated for any act which constitutes an offence involving moral turpitude, provided that such offence is committed by him in the course of his employment.”
The Acts
Provident Fund Act 1925
Public Provident Fund Act, 1968
Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
Coal Mines Provident Fund and Miscellaneous Provisions Act, 1948
General Provident Fund (CS) Rules, 1960
Family Pension Fund Act, 1952
Payment of Gratuity Act, 1973
Payment of Gratuity (Central Rules) Rules, 1972
Connected laws
Industrial Disputes Act
Pondicherry Co-operative Societies Act, 1972
Contributory Provident Fund (Tamil Nadu) Scheme and Gratuity Scheme of the Government of Tamil Nadu
Tamil Nudu State Electricity Board Contributory Provident Fund Regulations
Gujarat Civil Services (Pension) Rules, 2002
The Actors
- Regional Provident Fund Commissioner
- The Industrial Tribunal
- Provident Fund Appellate Tribunal
- Controlling Authority & Appellate Authorities under the Payment of Gratuity Act, 1972
Judicial Pronouncements
i. G.V.V. Swamy v. Regional Provident Fund Commissioner 1987 LAB.I.C. 719. In this case Hindustan Ship Yard had engaged construction contractors. Hindustan Ship Yard as principal employer was held liable for provident fund with respect to the employees of the said construction contractors. Hindustan Ship Yard sought determination of the amounts due by issuance of notices to the said contractors. The construction contractors objected to the same. The Division Bench of the Andhra Pradesh High Court held that the contractors became liable to pay to the Hindustan Ship Yard their own share of contribution as employer’s share as also the contribution payable by their employees;
ii Enfield India Ltd. Vs. Regional Provident Fund Commissioner, Madras. In this case Enfield, a manufacturer of motorcycles had entered into an agreement with one Thor Power Systems (TPS) whereunder TPS agreed to assemble generator sets with materials to be supplied by the Enfield. RPFC covered the employees of TPS as employees of Enfield for the purposes of provident fund. A single judge of the Madras High Court found that TPS was the sole contractor of Enfield and hence held Enfield to be the employer, u/s 2(f), of the employees of TPS;
iii. P.M. Patel & Sons v. Union of India 1986 LAB. I.C.1410 SC. In this case the Supreme Court held that the workers rolling beedis at their homes for the petitioner to be the employees of the petitioner;
- Kumar Brothers (Bidi) Pvt. Ltd. v. The Regional Provident Fund Commissioner 1968 Lab.I.C. 1578 Pat. The position herein was akin to above;
- Â S.K. Nasiruddin Beedi Merchant Ltd. v. Central Provident Fund Commissioner 2001 LAB. I.C. 730 SC. The position herein akin to above.
iv. Madras High Court in Springdales School v. Regional, Provident Fund Commissioner (2006) 2 LLJ 321 held that when an educational society enters into an agreement with the transporter for providing contract carriage bus and staff for running the bus such as driver, conductor, cleaner and there is no stipulation in the agreement about payments of charges by the transporter to his staff and the said transporter and his staff were also doing the duties of others, the employees of transporter cannot be said to be the employees of the educational society within the meaning of Section 2(f) of the EPF Act.
v. The Supreme Court in the case of Regional Provident Fund Commissioner and Another Vs. Dharamsi Morarji Chemical Co. Ltd., , has held that only because owner of different establishments are common, that by itself is no ground to establish interconnection. In paragraph 4 of the judgment, it has been held that,–
“So far as this contention is concerned the finding reached by the High Court, as extracted earlier, clearly shows that there was no evidence to indicate any such interconnection between the two factories in the matter of supervisory, financial or managerial control. Nothing could be pointed out to us to contradict this finding. Therefore, the net result is that the only connecting link which could be effectively pressed in service by the learned Counsel for the appellant for culling out interconnection between Ambarnath factory and Roha factory was that both of them were owned by a common owner, namely, the respondent-company and the Board of Directors were common. That by itself cannot be sufficient unless there is clear evidence to show that there was interconnection between these two units and there was common supervisory, financial or managerial control. As there is no such evidence in the present case, on the peculiar facts of this case, it is not possible to agree with the learned Counsel for the appellant that Roha factory was a part and parcel of Ambarnath factory or it was an adjunct of the main parent establishment functioning at Ambarnath since 1921”.
Attachment of Gratuity:-Â
- Section 13 of the Payment of Gratuity Act, which has been relied upon by the Appellate Authority, reads as under:
Section 13: Protection of gratuity-No gratuity payable under this Act(and no gratuity payable to an employee employed in any establishment, factory, mine, oilfield, plantation, port, railway company or shop exempted u/s 5 shall be liable to attachment in execution of any decree or order of any civil, revenue or criminal court.
 A perusal of Section 13 of the Act would show that gratuity payable to an employee under the Act, is not liable to attachment in execution of any decree or order of any civil court, revenue court or criminal court. Section 13 does not prevent an employer from deducting excess amount already paid to an employee at the time of his retirement. An employer is supposed to pay all terminal benefits to an employee at the time of retirement. If, at the time of retirement some excess amount has been paid against one head, the same can always be deducted out of balance payable. The interpretation, which is sought to be given by the Appellate Authority of Section 13 of the Act, in fact, is contrary to express words used. Attachment of gratuity in execution of decree or order is not same thing as deduction of an excess payment made by the employer. No Act can be interpreted in a manner, that it contravenes public policy. The public policy is that everybody should get his due and nobody should be paid more than his dues.
- In Secretary, O.N.G.C. Ltd. and Another Vs. V.U. Warrier, Supreme court upheld the recovery of dues of rent of accommodation not vacated by the respondent out of gratuity amount. Supreme Court also upheld the validity of Regulation 5 of the Commission dealing with such recovery of dues out of gratuity payable to the employee.
