An unchallenged notification excluding COLA from salary governs gratuity computation.

The appellant was appointed by the Consulate General of India, Jeddah, as an Arabic/English Typist on 12 July 1998. His appointment was initially probationary and thereafter contractual until retirement at the age of sixty years.

He served satisfactorily until superannuation and received terminal benefits, including gratuity calculated on the basis of twelve months’ basic pay alone.

The appellant contended that, under clause (c) of his employment contract, terminal benefits were payable at the rate of one month’s “salary” for each completed year of service, with “salary” meaning the last salary drawn at termination. Since he received Cost of Living Allowance (“COLA”) while posted at Jeddah, he argued that gratuity should be calculated on basic pay plus COLA.

The learned Single Judge rejected the claim, holding that COLA could not be added to basic salary for computing gratuity. The appellant challenged that decision in the present Letters Patent Appeal.

1. Whether the term “salary” in clause (c) of the appellant’s employment contract included basic pay together with COLA for calculating terminal gratuity

2. Whether the notification dated 12 October 2012 excluded COLA from the gratuity calculation and could be relied upon against the appellant

3. Whether the appellant, having not challenged the notification during his service, could claim gratuity calculated on basic pay plus COLA after superannuation

The Court applied the terms of the appellant’s employment contract, particularly clause (c), which provided one month’s salary for each completed year of service and defined salary as the last salary drawn at the time of termination, without a monetary ceiling on gratuity.

The Court also applied the notification dated 12 October 2012, as relied upon by the respondents, which clarified that COLA was not to be added to basic pay for fixing gratuity for employees of Indian consulates abroad.

The Court further proceeded on the principle that an employee who does not challenge an applicable service-condition notification during service cannot ordinarily seek a contrary benefit after retirement, particularly where the notification has been accepted by conduct.

Although clause (c) used the expression “last salary drawn,” the Court accepted the respondents’ position that the 12 October 2012 notification specifically clarified the meaning of salary for gratuity purposes by excluding COLA.

The appellant superannuated on 31 December 2019, several years after the notification, but did not challenge its validity or applicability during his service.

The Court treated this failure to challenge the notification as acceptance by conduct and held that the appellant could not, after retirement, claim a gratuity amount calculated by adding COLA to basic pay.

Consequently, the Single Judge’s refusal to include COLA was found to be legally sustainable.

Since the appellant had not challenged the notification dated 12 October 2012 during his service, he was not entitled to claim gratuity on the basis of basic pay plus COLA after superannuation.

The Letters Patent Appeal was accordingly dismissed, and the order dated 29 January 2024 passed in C.W.J.C. No. 16419 of 2022 was affirmed.