Pending disciplinary proceedings do not exempt employers from statutory interest on delayed gratuity.

Respondent No. 3, an Executive Engineer who had served the Gujarat Water Supply and Sewerage Board for over 36 years, retired on 31 July 2019. The Board claimed that departmental proceedings justified withholding part of his gratuity and relied on a Gujarat Finance Department circular permitting withholding in specified circumstances. No specific order directing withholding was passed during the relevant period.

Respondent No. 3 applied to the Controlling Authority for gratuity and interest. The Authority ordered payment with interest at 10% per annum; the Appellate Authority affirmed that order. The Board’s petition under Articles 226 and 227 challenged, principally, the award and rate of interest.

Section 7(3) of the Payment of Gratuity Act, 1972 requires the employer to determine and pay gratuity within the prescribed period; Section 7(3A) requires simple interest where payment is delayed, unless the delay is due to the employee’s fault and the employer has obtained the Controlling Authority’s written permission for delayed payment on that ground.

In H. Gangahanume Gowda v. Karnataka Agro Industries Corporation Ltd., (2003) 3 SCC 40, the Supreme Court held that interest under Section 7(3A) is mandatory where the statutory exception is not established, and directed interest at 10% in that case.

The judgment also referred to State of Uttar Pradesh v. Dhirendra Pal Singh, (2017) 1 SCC 49, and Y.K. Singla v. Punjab National Bank, concerning interest on delayed retiral benefits.

Judicial review under Articles 226 and 227 does not warrant interference absent a demonstrated legal or factual error.

The Court found that the Board had not passed a specific order withholding gratuity under the circular, nor shown that the statutory conditions for withholding or exemption from interest were met. The Board also failed to establish that the delay was attributable to the employee or that it had obtained the written permission required by the proviso to Section 7(3A).

The mere pendency of departmental proceedings and the Board’s status as a statutory body did not displace its obligations under the Act. Applying H. Gangahanume Gowda, the Court held that interest was a statutory consequence of delayed payment; the Board showed no sufficient basis to disturb the 10% rate awarded by the authorities.

The Board’s deposit of the amount with the Controlling Authority did not extinguish its liability for interest.

It directed that the amount deposited by the Board, including interest, be disbursed to Respondent No. 3 after due verification and in accordance with the authorities’ orders.