Enhanced gratuity for Federation employees operates only from the statutory amendment date.

The petitioners were retired employees of the Himachal Pradesh State Co-operative Marketing and Consumers Federation Limited (“Federation”) who superannuated between 1 January 2016 and 29 March 2018.

They challenged the Federation’s notification dated 14 October 2022 and corrigendum dated 5 October 2023, under which the maximum gratuity limit was enhanced from ₹10 lakh to ₹20 lakh only for employees retiring on or after 29 March 2018.

The petitioners relied on the State Government’s Office Memorandum dated 25 February 2022, which enhanced gratuity for State Government employees with effect from 1 January 2016, and sought similar treatment, together with arrears of revised pay and leave encashment.

The Federation contended that its employees were governed by its own Service Rules, particularly Rule 3.10, which linked gratuity to the Payment of Gratuity Act, 1972.

Since the statutory gratuity ceiling was enhanced under the Central Government notification dated 29 March 2018, the Federation adopted the enhanced ceiling from that date.

The State supported the Federation, maintaining that the State Government Office Memorandum applied only to State Government employees and not to Federation employees.

Whether the Federation’s decision to enhance the maximum gratuity limit from ₹10 lakh to ₹20 lakh with effect from 29 March 2018, rather than 1 January 2016, was arbitrary or discriminatory?

Whether Rule 3.10 of the Federation’s Service Rules entitled the petitioners to the enhanced gratuity applicable to State Government employees from 1 January 2016?

Whether the petitioners were entitled, in the same proceedings, to arrears of revised pay scales and leave encashment?

The Court applied Rule 3.10 of the Federation’s Service Rules, under which gratuity was payable in accordance with the Payment of Gratuity Act, 1972, as amended from time to time, while leave encashment was governed by the Leave Rules applicable to Government employees.

The Court treated the Central Government notification dated 29 March 2018, enhancing the statutory gratuity ceiling under the Payment of Gratuity Act from ₹10 lakh to ₹20 lakh with effect from that date, as the legal basis for the Federation’s corresponding enhancement.

It further held that the State Government’s Office Memorandum dated 25 February 2022, granting enhanced gratuity to State Government employees with effect from 1 January 2016, was restricted to that category of employees and did not automatically extend to employees of an independent co-operative federation.

The Court held that the Federation had not independently selected an arbitrary date; rather, its notification adopted the date on which the Payment of Gratuity Act itself enhanced the maximum gratuity limit, namely 29 March 2018.

Because Rule 3.10 tied Federation employees’ gratuity entitlement to the Gratuity Act, the statutory amendment governed their entitlement.

Employees who retired before 29 March 2018 were therefore not entitled to claim the benefit retrospectively merely because the State Government had separately extended a similar benefit to its own employees from 1 January 2016.

The Court also rejected the petitioners’ interpretation of amended Rule 3.10, holding that it contained two distinct components: gratuity governed by the Gratuity Act, and leave encashment governed by the Government Leave Rules.

The amendment introduced leave encashment benefits but did not alter the basis on which gratuity was calculated.

The petitioners, having retired before that date, were not entitled to the enhanced gratuity from 1 January 2016.

The writ petition was accordingly dismissed.

The Court did not adjudicate the claims relating to arrears of revised pay scales and leave encashment, but granted the petitioners liberty to pursue those claims through independent proceedings.