Interest on delayed gratuity cannot be denied merely because the employee litigated to enforce entitlements.

The petitioner, a Draughtsman Grade-I, retired from service on 31 August 2014.

A disciplinary proceeding initiated against him on 1 August 2012 resulted in withholding of his retiral benefits; the proceeding was ultimately quashed by the Central Administrative Tribunal (CAT) on 17 January 2023.

By order dated 8 January 2025 in OA No. 776 of 2023, the CAT directed payment of gratuity and other benefits, while observing that no interest would be granted because no such prayer had been made; it further provided for 8% interest from 18 February 2024 if the dues were not paid within the stipulated period.

The petitioner’s dues, including gratuity, were eventually paid on 15 March 2025, but without interest for the delayed payment of gratuity.

In OA No. 50 of 2025, the CAT refused interest on the grounds that the petitioner had not claimed it earlier and that the delay resulted from litigation pursued by him. The petitioner challenged that order before the High Court.

1. Whether the petitioner was entitled to statutory interest on gratuity delayed from 31 August 2014 until its payment on 15 March 2025 under Section 7(3-A) of the Payment of Gratuity Act, 1972?

2. Whether the petitioner’s pursuit of legal proceedings, and his failure to claim interest in an earlier proceeding, constituted “fault” disentitling him to interest under the proviso to Section 7(3-A) of the Act?

3. Whether the principles of constructive res judicata or Order II Rule 2 of the Code of Civil Procedure barred the subsequent claim for interest?

Section 7(2) and (3) of the Payment of Gratuity Act, 1972 require the employer to determine and pay gratuity within the prescribed period, while Section 7(3-A) mandates payment of simple interest from the date gratuity becomes payable until the date of payment.

The proviso excludes interest only where the delay is due to the employee’s fault and the employer has obtained written permission from the controlling authority on that ground.

In H. Gangahanume Gowda v. Karnataka Agro Industries Corpn. Ltd., (2003) 3 SCC 40, the Supreme Court held that payment of interest on delayed gratuity is a statutory mandate, not a matter of judicial discretion, unless the requirements of the proviso to Section 7(3-A) are satisfied.

The Court further applied the principle that pursuing lawful remedies against an employer cannot, by itself, be treated as employee fault, and held that strict principles of constructive res judicata or Order II Rule 2 CPC should not defeat a statutory claim arising under the beneficial provisions of the Payment of Gratuity Act.

The Court held that gratuity became payable when the petitioner retired on 31 August 2014, but was paid only on 15 March 2025, resulting in a delay of more than nine years.

Although the respondents attributed the delay to the petitioner’s repeated litigation, the Court found that approaching a competent court to challenge an allegedly illegal disciplinary proceeding and to claim retiral benefits could not constitute “fault” under the proviso to Section 7(3-A).

The respondents also had not established that they had obtained written permission from the controlling authority for withholding interest on the ground of employee fault, which was a mandatory condition under the proviso.

Applying the statutory mandate and the ratio of H. Gangahanume Gowda, the Court concluded that the CAT had no discretion to deny interest merely because it had not been specifically claimed in an earlier proceeding or because the petitioner had pursued litigation.

The beneficial object of the Gratuity Act reinforced the petitioner’s entitlement.

It held that the petitioner was entitled to simple interest on the gratuity amount at 8% per annum from 31 August 2014 to 15 March 2025, the date on which gratuity was paid.

The opposite parties were directed to pay the interest within three months from receipt of the certified copy of the judgment.