Interest Rate on Delayed Gratuity Payments Modified to Align with Prevailing Central Government Notifications.

The respondent-employees' gratuity (DCRG) payments were delayed by the appellant-Company.

The learned Writ Court, by order dated 04.11.2025 (arising out of W.P. No. 28234 of 2024), awarded the respondents 8% simple interest from the date the gratuity amount fell due for payment.

W.A. No. 633 of 2026 was filed with a delay of 22 days, necessitating I.A. No. 6656 of 2026 under Section 5 of the Limitation Act, wherein the appellants attributed the delay to time consumed in obtaining legal opinion and procedural inertia/internal formalities.

The respondent opposed the application as lacking plausible explanation.

With consent of parties, both appeals—bearing similitude of dispute—were heard analogously and decided by a common order.

The appellants contended the 8% rate was on the higher side; the respondents invoked Circular dated 26.04.1996 (Annexure-P/7) prescribing 12%, but fairly conceded that this rate applied only where DCRG was not paid within six months.

1. Whether the delay of 22 days in filing W.A. No. 633 of 2026 constituted sufficient cause warranting condonation under Section 5 of the Limitation Act.

2. Whether the rate of interest on the delayed gratuity payment, fixed at 8% by the Writ Court, required modification in light of Section 7(3A) of the Payment of Gratuity Act and the Central Government notification dated 01.07.2022.

The Court applied Section 5 of the Limitation Act, holding that "sufficiency of cause is the prime consideration" for condonation of delay.

The Court was guided by the Supreme Court's liberal approach in Motilal Songara v. Prem Prakash, (2013) 9 SCC 199; Sheo Raj Singh (D) v. Union of India, (2023) 10 SCC 531; and Vishnu Vardhan v. State of U.P., 2025 SCC OnLine SC 1501, favouring adjudication on merits.

Section 7(3A) of the Payment of Gratuity Act, 1972, under which delayed gratuity carries simple interest at the rate notified by the Central Government; the notification dated 01.07.2022 prescribed a rate of 7.1%.

The Circular dated 26.04.1996 prescribing 12% interest was held relevant only where DCRG remained unpaid beyond six months and was found inapplicable to the present facts.

On Issue 1, the Court, considering the nature of the dispute and the reasons assigned in the application—procedural formalities following legal opinion—found sufficiency of cause made out and condoned the 22-day delay.

On Issue 2, the Court tested the impugned 8% rate against the governing statutory framework. It noted that the respondents' reliance on the 1996 Circular's 12% rate did not advance their case, as counsel fairly conceded the higher rate operated only where DCRG was unpaid beyond six months and the present "facts are bit different".

The Court applied Section 7(3A) read with the 01.07.2022 notification, fixing the prevailing rate at 7.1%. However, because the appellants' own delay compelled the respondents to run "from pillar to post and post to pillar" to realise their dues, the Court held that, "in fitness of things," interest at 7.1% shall remain leviable on the delayed payment, leaving the remainder of the impugned order intact.

The Court modified the impugned order by reducing the interest payable on the delayed gratuity from 8% to 7.1% simple interest, keeping all other contentions/directions in the impugned order intact.

Both appeals stood disposed of, with a direction that necessary payment be made without delay, within one month from the date of submission of the certified copy of the order.