PAYMENT OF

GRATUITY ACT , 1972

KUNAL DAYANI 10PGHR21

PURNIMA DHAR 10PGHR39
RAHUL ROY
10PGHR40
SANDEEP RATH
10PGHR44
SHIKHA GOYAL 1OPGHR45
URVASHI AGARWAL
10PGHR57

Background

Paid for faithful continuous service in the

organization

Payable on completing 5 years of

continuous service with the organization

Includes probation period

The above rule is waived of in the

eventuality of

Death
Permanent disablement

Historical Background
Govt. of
Keralas
legislation
for
payment of
gratuity

3rd June
1971,
introduced
a ordinance
where
payment of
gratuity
was
enacted

Ordinance
replaced by
West
Bengals
employees
payment of
compulsory
gratuity act

Central
legislation
on gratuity
discussed
and bill
introduced
in
parliament

Objective of the
Act
The Payment of Gratuity Act, 1972 envisagesto provide a

retirement benefit to the workmenwho have rendered

long and unblemished service to the employer, and have thus
contributed to the prosperity of the employer.

Concept of Gratuity
Considered as an award for
good, efficient and faithful
service rendered by the
employee for a considerable
period

Originally a legitimate claim

which workers could demand on
rendering meritorious service to
employer for a certain period

Dynamic
Concept
After the Gratuity Act, 1972,
gratuity has become a statutory
right of workers- so the concept
of meritorious service no longer
holds

In view of the trend of decisions

of the Supreme Court, service
which earns gratuity need not
be meritorious and is available
to employees for long and
continuous service

Applicability

Extends to whole of India

Applicable to those
organizations where employee
strength is more than 10
Shop or establishment in which
act has become applicable shall
continue to be governed by act
even though employee
strengths falls below 10

Appropriate Government

Appropriate
Govt.

Establishmen
t

Belonging to
Central Govt.
Having
branches in
more than
one state

Factory

Major mine,
port, oilfield
or railway

Other case

In any other
case state
government

Definitions

Employees
Regular employees of the Institute + Director
Exclude persons appointed on a contract basis
unless the terms of the contract provide for payment
of any gratuity

Member
Employee who has been admitted to the
membership of the Scheme

Employer
Person appointed by appropriate govt. or local
authority to supervise and control establishment or
where no person appointed, head of Ministry of Dept.
concerned/chief executive office of local authority

Definitions (Contd.)

Qualifying Service

Superannuation

Attainment of age for vacating employment

Retirement

Continuous service of not less than five years including

periods of authorised leave.

Termination of employment other than superannuation

Wages

Earned while on duty or on leave.

Includes DA
Does not include bonus, HRA, overtime, commission etc.

Dungerbhai
Meghabhai v.
Shri Arbuda
Mills Ltd.,
(1996) 1 CUR
LR 149: 1996
lab IC 262

Cases
Definitions

Services rendered prior to re-employment cannot

be treated as continuous service for claiming
Monitron
gratuity
Securities (P)
Ltd. v.
Mukundlal
Khushalchand
Dhavan, (2001)
1 CUR LR
507(GUJ)

A director of company not having ultimate

control over the management of company will
be employee of company

Gurudeo
Ayurved
Mahavidyalay
a v. Madhav,
(1994)
(Bombay)

Cases
Definitions

A college run by a societies registered under

the societies registration act is an
establishment.
Shri
Shri
Jagganath
Temple Puri V.
Jagannath
Padhi, 1992 ,
Orrisa.

A temple is an establishment

Gratuity v.
Pension

Both are efficiency

devices and are
considered necessary for
orderly and human
elimination from the
industry

Gratuity v.
Provident Fund
Gratuity is a retiral
benefit but
Provident Fund is
intended to induce
thrift so that
employees may lay
from his present
earning a portion for
his old age

Gratuity v. Retrenchment
Compensation
Compensation for premature termination of
employment- Section 25-F(b) of the Industrial
Disputes Act, 1947

Continuous Service

Salient features of the Section 2-A

Sundays, National holidays and Weekly

offs are to be included in computing
period of 240 days.
Sri Ahilandeshwari Mills Ltd., Salem v.
Assistant Commissioner of
Labour( Controlling Authority), Salem,
1999 LLR 576 (Mad.)

Payment Of Gratuity

Gratuity when payable:

on termination of employment after he has

rendered continuous service for not less than 5
yrs:

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

However in case of death or disablement of the

Computation of Gratuity

For every completed year of service or part thereof in

excess of 6 months, gratuity has to be paid at a rate of
15days wages (last drawn salary)

In case of piece rated employee, daily wages will be

computed on the average of the total wages received
by him for a period of 3 months preceding his
termination of employment:
for this purpose overtime work is not taken into
account

In case of a seasonal establishment, employer shall pay

gratuity at the rate of 7 days for each season

Computation of Gratuity- Contd.

The amount of gratuity payable shall not exceed Rs

3.5 lacs

In computing the gratuity payable to an employee who

is employed after his disablement on reduced wages,
his wages before his disablement would be taken into
account for that period and for the subsequent period
his reduced wages would be taken into account.

Compulsory
Insurance
Every employer must, for his liability to pay towards
the gratuity , obtain an insurance from the LIC

Cases related to Computation of Gratuity

Cases related to Computation of

Gratuity
( Contd.)

Exemption from Provisions of the Act

May be given by appropriate government only.

In case of receipt of gratuity or pensionary benefits not

less favorable than the benefits conferred under this
act

Can be given only by way of a notification in the

Official Gazette

Notification to be issued retrospectively a date not

earlier than the date of commencement of this Act

No Notification shall be issued to prejudicially affect

the interests of any person

Nomination

Every employee, who has completed 1 year of service, is

compulsorily required to make a nomination. (Form F)

The nomination must be made within 30 days of completion

of one year of service

The nomination must be made in favour of one or more

members of the family (nomination shall be void if it is
made in favour of a person who is not a member of his
family)

If at the time of making nomination the employee does not

have family, the nomination may be made in favour of any

Determination of the amount of gratuity

Application can be made by:

An employee who is eligible for payment of gratuity

Any person authorised in writing by such employee

Nominee of the employee (if the deceased employee had made a nomination)

Legal heir of the employee (if the deceased employee had not made any
nomination

Application shall be made to the employer in writing within 30 days

from the date gratuity becomes payable

As soon as the gratuity becomes payable, employer has to

determine the amount of gratuity & give notice

It is irrespective of the fact whether an application for payment of

gratuity has been made or not

Determination of the amount of gratuity

Within 15 days of receipt of application, employer shall,

If claim is admissible, send notice within 30 days

If claim is inadmissible, send notice on form M

To be paid within 30 days from the date it becomes payable

If not paid within 30 days, simple interest from the payable date to paid date.

In case of any dispute wrt gratuity, the amount must be deposited with controlling
authority

Controlling Authority shall make due inquiries and if claim is found admissible,
direct payment is made to person entitled

Appeal

The appeal is made by the person aggrieved by order to Controlling Authority.

Limitation 60 days from the date of receipt of order which is further extended
to 60 days more on sufficient cause.

Inspectors
Purpose of Appointment : To ascertain whether or not the provisions
of the Act have been complied with by an
employer.
Duties of Owners etc. : To produce accounts, books, registers or
other documents required by the inspector;

To give information
Inspector

required

by

the

Inspectors
The inspectors shall be appointed by AG by Notification in the Official

Gazette

Every Inspector shall be deemed to be a public servant within the

meaning of section 21 of IPC.

Such number of inspectors may be appointed as AG may deem fit.

AG may define the area to which the authority of an inspector shall

extend. Where two or more inspectors are appointed for the same
area, AG may distribute or allocate work to be performed by them
(i.e., AG may define the limits within which the inspector shall exercise
jurisdiction).

Power of Inspectors

To call such information from the employer as he considers

necessary

To enter into or inspect, at all reasonable times, any

premises of any establishment, factory, mine oilfield,
plantation port or railway company or shop to which this Act
applies, any books, registers, records, notices and other
documents

To examine the employer and his servants

To make copies and take extracts of any books, registers,

records, notices and other documents

Recovery of gratuity

The controlling authority shall issue a certificate for

the amount to the Collector and pay the same to the
person entitled under the following conditionsIf the amount of gratuity payable under this Act is
not paid by the employer
within the prescribed time
to the person entitled
If an application made to it in this behalf by the
aggrieved person
Collector shall recover the same, together with
compound interest by notification from the date of
expiry of the prescribed time

Penalties
(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

Exemption of employer from liability in

certain cases
Where an employer upon complaint duly made by him and on
giving to the complainant not less than three clear days notice
in writing of the following

of his intention to do so

to have any other person whom he charges as the actual

offender brought before the court at the time appointed for
hearing the charge
If after the commission of the offence has been proved the
employer proves to the satisfaction of the court the following that he has used due diligence to enforce the execution of this
Act
that the said other person committed the offence in question
without his knowledge, consent or connivance, that other
person shall be convicted of the offence as if he were the
employer and the employer shall be discharged from any
liability under this Act in respect of such offence

Cognizance Of Offences

No cognizance of an offence save a

complaint by or under the appropriate
Government
Under non-payment of gratuity within 6
months of prescribed date appropriate
Government authorizes and within 16 days
of authorization complaint shall be lodged
against the Magistrate
No court inferior to Metropolitan
Magistrate or a Judicial Magistrate of the
first class shall try any offence under this

Protection of action taken in good faith

No suit or any legal proceeding against any

controlling authority which is in good faith done or
intended to be done under this Act

Protection of gratuity
No gratuity shall be liable to attachment in
execution of any decree or order of any civil,
revenue or criminal court

Act to override other enactments

The provisions of this Act shall have effect
notwithstanding anything inconsistent therewith
contained in any enactment other than this Act

Power to make rules

The appropriate Govt. may, by notification,

make rules for the purpose of carrying out
the provisions of this Act
Every rule made by the Central Govt. shall
be laid before each House of Parliament, and
both Houses should either agree or disagree
in order to have effect or no effect and that
any such modification or annulment shall be
without the prejudice to the validity of
anything previously done under that rule

Interest
on this
Delayed
of
While
interpreting
the Payment
aforesaid
provisions
Answering
question
the SC referred
to
Gratuity
the
court
observed:
the
provisions
in section
7(3-A)
of the PGA
Kerala
State
Cashew
Development
[I]t is absolutely
clear that
if any amount
of gratuity ,
which
reads as
under:
which
is payable
under
section
7 is
not paid
by the
Corporation
Limited
v. N.
Asokan
(2009)
employer within the16 period
specified in subSCC
758
If the amount of
gratuity payable under subCase
section(3), the employer
is liable to pay interest from
section (3) is not paid by the employer within
the date on which the
gratuity becomes payable to
Facts:
the period specified in sub-section (3), the
the date on which it is paid, simple interest at such
employer shall pay, from the date on which the
rate, not exceeding the rate notified by the Central
gratuity becomes payable to the date on which
Government from time to time for repayment of longit is paid, simple interest at such rate, not
term deposits, but on those delayed payments, where
exceeding the rate notified by the Central
the employer has obtained permission in writing from
Government from time to time for repayment of
the controlling authority for delayed payment, in that
long-term deposits, as that Government may,
case, no such interest shall be payable to the
by notification specify:
employee.
Applying
the above
principle
in this case
held
Provided
that no
such interest
shallthe
becourt
payable
that ifasthe
no delay
such permission
was obtained
the employer
in the payment
is due by
to the
fault of
in writing
from the controlling
section
7(3-A) and
the employee
and the authority,
employer
has obtained
its term
would be in
squarely
applicable
the controlling
facts of this
permission
writing
from in
the
case.
The courtfor
accordingly
upheld payment
the decision
the
authority
the delayed
on ofthis
court
below.
ground.

Constitutional Validity of the Gratuity (service

compensation under the Andhra Pradesh Shops and
Establishments Act, 1988)
Grand Kakatiya Sheraton Hotel and Towers
Employees and Workers Union v. Srinivasa Resorts
Limited (2009) 5 SCC 342
This case decided the question relating to the validity of
section 47(3) & (4) of Andhra Pradesh Shops and
Establishments Act, 1988 of
(AP
Shop
Act) which
said
toand
be in
the
provision
of theisPG
Act
The HC on comparison
direct conflict with the Payment of Gratuity Act,
1972 (PGA)
the AP Shop Act found that they were almost identical
and the payment of gratuity was replaced by the
introduction of the concept of service compensation. The
only change was to the extent of the minimum
requirement period of six months to one year. It also
observed that the service compensation was nothing, but
a gratuity which was payable to the employee as a gift or
reward for rendering long and continuous service. It
accordingly held that limiting this period only to one year
was unreasonable and discriminatory.

A.Padmanabhan Vs. Joint Commissioner of

Labour, (Appellate
Authority under the Payment or Gratuity Act),
Labour welfare
Buildings, Teynampet, Chennai and Another

State of U.P. v. Smt. Anwari Begum

and Another
Important:
Gratuity, alongImportant:
with 8% interest, has
Gratuity,
along
with by
8%the
interest,
has
been rightly
directed
Controlling
been
rightly
directed
Controlling
Authority
to be
paid toby
thethe
legal
heirs of
Authority
to be paid
to the legal
of
the deceased
employee
whoheirs
was
the
deceased
employee
who was
employed
as electrician
in work-charge
employed
as electrician
work-charge
establishment
of the in
electrical
and
establishment
of the Public
electrical Works
and
mechanical
division,
mechanical
division, and
Public
Works
Department, Gorakhpur
has worked
Department,
has worked
for more than Gorakhpur
11 years tilland
his death
for more than 11 years till his death

Thank You