Employees must elect between statutory and contractual gratuity schemes; they cannot combine benefits.

The petitioner joined the KSRTC as a conductor in 1973, was later promoted, and retired on 30 June 2005 after 32 years of service.

On retirement, his basic pay was Rs.7,800 and dearness allowance (DA) was Rs.5,226.

The Controlling Authority allowed his gratuity claim; on the Corporation’s appeal, the Appellate Authority calculated gratuity under the Corporation’s Regulations using basic pay alone and reduced the interest rate to 6% per annum.

The petitioner sought review of that order, contending that DA should be included and that interest should be 10% per annum.

1. Whether the petitioner’s gratuity should be calculated under the Payment of Gratuity Act, including DA, or under the Corporation’s Regulations, and whether he could combine the more favourable elements of both methods.

2. Whether the Government Order dated 28 November 1995 required DA to be included in calculating the petitioner’s gratuity.

3. Whether the petitioner was entitled to interest at 10% per annum for delayed payment of gratuity.

Section 4(5) of the Payment of Gratuity Act, 1972 preserves an employee’s right to better terms of gratuity under an award, agreement, or contract with the employer; however, the employee must elect between the statutory scheme and the contractual or regulatory scheme and cannot combine their most favourable components (Beed District Central Coop. Bank Ltd. v. State of Maharashtra, (2006) 8 SCC 514).

Under the Corporation’s Gratuity Regulations and the applicable settlements, gratuity was one month’s “pay” for each completed year of service, with “pay” including basic pay, personal pay, and specified charge allowance, but not DA.

The Government Order dated 28 November 1995 applied to employees retiring or dying in service during the specified period, and the Division Bench ruling in North West Karnataka Road Transport Corporation v. Kallurappa, 2019 SCC OnLine Kar 3787, distinguished that benefit from claims by employees retiring outside that period.

Section 7(3-A) of the Gratuity Act requires interest on delayed gratuity at the rate notified by the Central Government.

The Court compared the two available calculations: Rs.2,40,480 under the Act, using basic pay plus DA and the statutory 15/26 formula, and Rs.2,49,600 under the Corporation’s Regulations, using basic pay multiplied by 32 years.

As the regulatory calculation was more beneficial, the Appellate Authority correctly applied that scheme.

The Regulations did not include DA in “pay,” and the petitioner could not add the Act’s DA component to the more favourable regulatory method.

The 1995 Government Order did not assist him because he retired in 2005, outside its specified period; the Court relied on Kallurappa in distinguishing the earlier Krishna Reddy claim.

On interest, the Court held that the applicable notified rate was 10%, not 6%, and directed interest for the periods during which the respective gratuity amounts remained unpaid.

It modified the Appellate Authority’s order by directing interest at 10% per annum on Rs.2,26,200 from 30 July to 12 September 2005, and on the balance Rs.23,400 from 13 September 2005 to 10 October 2009.

The writ petition was disposed of with those modifications.