Karnataka HC Rejects Retired Bus Conductor’s Bid To Include DA In Gratuity, As Settlement Formula Yielded More Than Act Formula

In brief

The question

1. Whether the petitioner’s gratuity was required to be calculated under the Corporation’s Memorandum of Settlement or under Section 4(2) of the Payment of Gratuity Act, 1972, whichever was more beneficial

The court held

The Court held that the petitioner’s gratuity was properly calculated under the more beneficial Memorandum of Settlement and that DA was not included in pay as defined by that Settlement.

It also directed

Finding no error or illegality in the orders of the Controlling and Appellate Authorities, the Court dismissed the writ petition. It further directed the Corporation to deposit any unpaid balance of the awarded amount within two weeks of receiving a copy of the order.

01Facts

The petitioner, a former employee of the respondent-Corporation, retired on 28 February 2001 after 23 years, 7 months and 24 days of service. His last basic pay was Rs.7,115, with dearness allowance (DA) of Rs.5,041.

pp. 3–4

Dissatisfied with the gratuity paid, he applied under Section 7 of the Payment of Gratuity Act, 1972. The Controlling Authority directed payment of a differential Rs.2,965, with Rs.470 interest; the Appellate Authority affirmed that order. The petitioner challenged both orders, contending that DA should have been included in the gratuity calculation

pp. 3–4, 6

02Issues

i.1. Whether the petitioner’s gratuity was required to be calculated under the Corporation’s Memorandum of Settlement or under Section 4(2) of the Payment of Gratuity Act, 1972, whichever was more beneficial

pp. 7–9

ii.2. Whether DA had to be included in the petitioner’s pay for calculating gratuity under the Memorandum of Settlement

pp. 9–10

03Law Applied

Section 4(5) of the Payment of Gratuity Act, 1972 preserves an employee’s right to receive better terms of gratuity under an award, agreement or contract with the employer.

p. 7

Under the Memorandum of Settlement dated 27 September 1981, gratuity was payable in accordance with the Gratuity Regulations or the Act, whichever was more beneficial; clause 7(b) provided for one month’s pay for each completed year of service, with proportionate gratuity for completed months in the incomplete final year, and clause 7(c) defined pay to include basic pay, personal pay and specified charge allowance.

pp. 8–9

Section 4(2) of the Act provides the statutory basis for calculating gratuity by reference to wages, length of service and the statutory formula.

p. 10

Provisions in the judgment · 2

PAYMENT OF GRATUITY ACT, 1972 Section 7Section 4

04Reasoning

The Court read clause 7(c) of the Settlement as defining pay for settlement-based gratuity and found that it did not include DA. Applying that definition, it calculated the petitioner’s gratuity under the Settlement as Rs.1,67,795, based on basic pay of Rs.7,115 and the service period reckoned by the authorities.

pp. 9–10

The Court compared this with the statutory calculation of Rs.1,38,905 and held that the Settlement was more beneficial. The Corporation had paid Rs.1,64,830, leaving the Rs.2,965 differential ordered by the Controlling Authority; the Court therefore found no error in the authorities’ calculation or decision.

pp. 10–11

05Holding

The Court held that the petitioner’s gratuity was properly calculated under the more beneficial Memorandum of Settlement and that DA was not included in pay as defined by that Settlement.

pp. 11–12

LawLens.Karnataka High Court

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