Implementation of revised pay scales precludes denial of consequential enhanced gratuity on grounds of financial affordability.

In brief

The question

1. Whether an employer, having implemented a pay revision scheme, can selectively deny the enhanced gratuity ceiling of ₹10 lakhs contemplated under the same scheme on the grounds of financial affordability.

The court held

The High Court dismissed the Writ Appeals, affirming the Writ Court's order in favor of the employees.

It also directed

The Court held that the Respondents are entitled to the enhanced gratuity of ₹10,00,000/-.

Furthermore, while interest was not specifically claimed in the writ, the Court held that belated settlement of gratuity attracts a statutory requirement of interest, which was fixed at 8.5% per annum following the Supreme Court's modification in similar litigation.

All connected miscellaneous petitions were closed.

01Facts

The Appellants (Madras Fertilizers Ltd.) challenged a Writ Order dated 15.03.2022

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The dispute involves retired employees (Respondents) who sought enhanced gratuity of ₹10,00,000/- based on a Government of India Office Memorandum (OM) dated 26.11.2008, which revised pay scales effective from 01.01.2007

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The Appellant had implemented the revised pay scales and other benefits but denied the enhanced gratuity ceiling to those who retired before the formal amendment of the Payment of Gratuity Act, citing the "affordability" clause in the OM

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02Issues

i.1. Whether an employer, having implemented a pay revision scheme, can selectively deny the enhanced gratuity ceiling of ₹10 lakhs contemplated under the same scheme on the grounds of financial affordability.

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ii.2. Whether the enhanced gratuity limit under the OM dated 26.11.2008 is a consequential benefit that must follow the revision of pay scales.

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03Law Applied

The Court primarily applied Clause 13 of the Office Memorandum dated 26.11.2008, which raised the gratuity ceiling for CPSE executives to ₹10 lakhs effective from 01.01.2007

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It interpreted Clause 3 regarding "affordability" as a discretionary factor to be considered at the time of the initial decision to implement the pay revision

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The Court also relied on the precedent set by the Karnataka High Court in *W.A.No.443 of 2019* (affirmed by the Supreme Court in *SLP (C) Nos.16004-16005 of 2021*), which established that interest on delayed gratuity is payable at 8.5% per annum

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Provisions in the judgment · 1

Payment of Gratuity Act, 1972 Section 4

04Reasoning

The Court reasoned that once the Appellant exercised its discretion to implement the revised pay scales and granted benefits like DA, HRA, and increments effective from 01.01.2007, it could not selectively invoke "affordability" to deny the enhanced gratuity ceiling.

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Since gratuity is a consequential benefit calculated based on the revised pay and years of service, denying it under Clause 13 while granting the pay revision under Clause 3 would defeat the spirit and objectives of the OM.

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The Court distinguished the Appellant’s reliance on *Krishna Gopal Tiwary v. Union of India*, noting that the cited case pertained to Tax Deducted at Source (TDS) rather than the substantive entitlement to the gratuity amount itself.

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