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Claim for gratuity in excess of ceiling u/s 4(3) not beyond scope of PG Act: Delhi High Court

The Delhi High Court has held that a claim for gratuity in excess of the ceiling limit prescribed under Section 4(3) is not at all beyond the scope of the Payment of Gratuity Act, 1972.

Further, just because there is a ceiling placed under the provision, it cannot be said that the jurisdiction of the Controlling Authority under the Act to examine a dispute under Section 7(4)(b) is curtailed to the same pecuniary limit.

The judgment was passed by a Single Judge Bench of Justice Rekha Palli in a batch of petitions assailing identical but separate orders passed by the statutory authorities under the said Act. The said orders had upheld the claim of the respondent employees to receive gratuity beyond the ceiling limit prescribed under Section 4(3) of the Act.

One of the respondents, who was the Chief Executive Officer of the petitioner corporation, had resigned after rendering service of 12 years. As payment towards gratuity, the petitioner corporation sent out of Rs.10,00,000 as the maximum amount of gratuity payable to him. The respondent, on the other hand, claimed that he was entitled to a total of Rs.1,83,75,000 as gratuity for the entire period of his service.

He wrote to the petitioner corporation claiming this sum as gratuity, but to no avail. Aggrieved by the amount of gratuity paid to him, he filed a claim application before the Controlling Authority under Section 7 of Act.

Consequently, the Controlling Authority allowed his claim for gratuity and directed the petitioner corporation to pay him Rs.1,73,75,000 over and above the gratuity amount already paid to him, along with simple interest at the rate of 10% per annum for delayed payment. The said order was upheld by the Appellate Authority.

The petitioner corporation then filed a writ petition before the Delhi High Court challenging the findings of the Controlling Authority and Appellate Authority.

Before the High Court, the petitioner corporation argued that Section 4(3) of the said Act categorically provided that the maximum gratuity payable to an employee under the Act was Rs.10,00,000, unless the concerned employee was entitled to receive better terms of gratuity under any award or agreement or contract.

It thus brought on record the respondent’s terms of appointment to contend that the gratuity clause therein clearly shows that he would be entitled to gratuity “as per laws”.

It was further argued that since the Act imposed a maximum limit of Rs.10,00,000, the Controlling Authority, while exercising its powers under Sections 7(4)(a) and 7(4)(b), can only decide disputes in which the amount claimed is less than or equal to the said ceiling amount.

Rejecting the contentions put forth by the petitioner corporation, the Court observed that while Section 4(3) generally prescribes a limit on the maximum amount of gratuity, Section 4(5) carves out an exception for those employees who have better terms of gratuity under an award, or an agreement or contract with the employer.

A perusal of Section 4(5) of the Act makes it evident that it begins with a non-obstante clause that gives the said provision an overriding effect over the remaining provisions of Section 4.”, it said.

In this light, the Court stated,

To hold anything to the contrary, would be de hors the spirit of the PG Act and would render Section 4(5) completely nugatory so as to hamper an employee’s right to enter into contracts/agreement with better terms of gratuity than those prescribed under the PG Act.

After perusing the terms of employment of the respondent, the Court concluded that there was nothing to limit his gratuity to the ceiling limit prescribed under Section 4(3).

Holding that in the absence of a specific clause that caps the maximum amount of gratuity payable to an employee, the employment conditions cannot be construed to mean that the ceiling limit under Section 4(3) is applicable, the Court observed.

The relevant Rule 6(b) of petitioner’s gratuity scheme only stipulates that the amount of gratuity payable to an employee shall be calculated in accordance with the provisions of the PG Act. The “provisions of the PG Act” is a broad phrase that not only contemplates the rate statutorily prescribed under Section 4(2) and the ceiling limit under Section 4(3), but also the exception carved out under Section 4(5) for employees who have better terms of gratuity under an award, or agreement/contract with the petitioner.

Coming to the issue of whether the Controlling Authority has jurisdiction under Section 7(4)(a) and 7(4)(b) to decide claims in excess of the ceiling limit prescribed under Section 4(3), the Court held it is “unfathomable how the jurisdiction of the Controlling Authority can be curtailed to decide only those claims that have a pecuniary value less the said ceiling limit.”

The PG Act is a complete code in itself with respect to matters relating to the payment of gratuity and the Controlling Authority appointed under Section 3 is statutorily enjoined under Section 7(4)(b) to adjudicate any dispute qua the amount of gratuity payable or as to the admissibility of any claim to gratuity…

Merely because Section 4(3) places a ceiling on the amount of gratuity payable to an employee in the absence of better terms of gratuity in accordance with Section 4(5), it cannot be said that the jurisdiction of the Controlling Authority to examine a dispute under Sections 7(4)(b) is curtailed to the same pecuniary limit.”

It thus concluded that there was absolutely no reason for it to interfere with the orders under challenge.

The petitioner corporation was represented by Senior Advocate Sandeep Sethi with Advocate Gulshan Chawla.

The respondent employees were represented by Senior Advocate JP Cama with Advocates Kunal Gosain, Utsav Jain and Saurabh Prakash.

Source:Bar&Bench