Interest is Mandatory on Delayed Gratuity Despite Alleged Dues if No Recovery Proceedings Exist.

The petitioners are the legal heirs of Late Dr. Anwarullah Khan, who retired as a Medical Officer on 31.07.2005 after 35 years of service.

Despite retirement, his gratuity was withheld due to alleged outstanding house rent dues of ₹18,50,975/-.

The deceased employee’s initial writ petition (2014) resulted in a direction to release the dues, which the state failed to comply with, leading to contempt proceedings.

During the contempt proceedings, the court noted that no recovery proceedings had ever been initiated against the deceased during his lifetime.

In July 2024, nearly 19 years after retirement, the state finally released ₹3,50,000/- as gratuity but rejected the petitioners' claim for interest via an order dated 01.01.2026.

1. Whether the respondents are liable to pay interest on the delayed payment of gratuity when the delay spanned approximately 19 years.

2. Whether the state can deny interest by re-agitating the issue of house rent recovery after that plea was already rejected in prior contempt proceedings.

Section 7(3A) of the Payment of Gratuity Act, 1972, and the Central Government Notification dated 01.10.1987, which stipulates simple interest (typically 10% p.a.) for delayed payments.

Principle that pension and gratuity are "valuable rights and property" and not a bounty, as established in M. Padmanabhan Nair and R. Kapur v. Director of Inspection.

Doctrine of finality of judgments citing Neelima Srivastava v. State of Uttar Pradesh, which prevents the re-opening of issues already decided by a court of competent jurisdiction.

The court found that the gratuity amount remained withheld for 19 years without valid justification.

It rejected the state's defense regarding house rent arrears because the Contempt Court had already dismissed this plea on 29.05.2024, noting that no statutory recovery proceedings under the U.P. Public Premises Act, 1972, were ever initiated during the employee's lifetime.

The court reasoned that since the state eventually complied with the writ court's order to pay the principal gratuity amount, they could not now deny the statutory and equitable interest accruing from that delay.

Re-agitating the rent issue was deemed an "abuse of process" as the issue had attained finality.

It held that the petitioners are entitled to simple interest at the rate of 10% per annum on the gratuity amount from the date of retirement (31.07.2005) until the actual date of payment (30.07.2024). The respondents were directed to calculate and release this interest amount within three months.