Retired Employee’s Gratuity Claim Sent Back for Recalculation Without Special Allowance: Gujarat HC

In brief

The question

Whether special allowance could be included in “wages” for calculating gratuity under the Payment of Gratuity Act, 1972.

The court held

The Court allowed the petitions, quashed the orders of the Controlling Authority and Appellate Authority, and remitted the respondent’s original gratuity application to the Controlling Authority for fresh consideration, after hearing the parties and applying the relevant statutory provisions and precedents.

It also directed

It directed that the application be decided as expeditiously as possible, preferably within three months of receipt of the order.

Rule was made absolute to that extent.

01Facts

The respondent, a retired employee of the petitioner society, applied for gratuity under the Payment of Gratuity Act, 1972.

p. 2

The Controlling Authority partly allowed the application on 3 July 2023 and directed payment of gratuity with interest, calculating the amount by including the respondent’s special allowance with his basic salary.

p. 2 · p. 8

The petitioners’ appeal was dismissed as time-barred without consideration of its merits.

pp. 2–3 · p. 9

The petitioners then challenged both orders under Articles 226 and 227, contending that special allowance could not be included in the wage base for gratuity.

pp. 3–4

The respondent did not appear.

p. 4

02Issues

i.Whether special allowance could be included in “wages” for calculating gratuity under the Payment of Gratuity Act, 1972.

p. 4 · ¶ 6 · pp. 8–9 · ¶ 7–9

ii.Whether the Controlling Authority’s order and the Appellate Authority’s dismissal of the appeal should be set aside and the gratuity application reconsidered.

pp. 9–12 · ¶ 7.2–10

03Law Applied

Section 2(s) of the Payment of Gratuity Act, 1972 defines “wages” as emoluments earned in accordance with the terms of employment, includes dearness allowance, and excludes specified payments, including “any other allowance”.

p. 6 · ¶ 6.2

Relying on T.I. Cycles of India, Ambattur v. M.K. Gurumani, (2001) 7 SCC 204, and The Straw Board Manufacturing Co. Ltd. v. Its Workmen, AIR 1977 SC 941, the Court stated that wages for gratuity purposes mean basic wages and dearness allowance, and nothing else.

pp. 6–7 · ¶ 6.4–6.6 · p. 11 · ¶ 8

The Court also referred to The Manipal Academy of Higher Education v. Provident Fund Commissioner, (2008) 5 SCC 428, for the universality-based approach to identifying wage components, and to Commissioner of Customs & Central Excise v. Hongo India Private Limited, (2009) 5 SCC 791, concerning the limits on extending statutory appeal periods.

pp. 4–6 · ¶ 6.1 · pp. 9–11 · ¶ 7.3

Provisions in the judgment · 23 · Linked ones open on LawLens

Limitation Act, 1963 22 provisions

Section 4 Section 5 Section 6 Section 7 Section 8 Section 9 Section 10 Section 11 Section 12 Section 13 Section 14 Section 15 Section 16 Section 17 Section 18 Section 19 Section 20 Section 21 Section 22 Section 23 Section 24 Section 29

Central Excise Act, 1944 Section 35

04Reasoning

The Controlling Authority had treated special allowance as part of the respondent’s wages, although the statutory definition and the authorities relied on by the Court indicated that gratuity should be calculated on basic wages and dearness allowance, excluding other allowances.

pp. 8–12 · ¶ 7.1, 9–9.1

The salary slip showed that the respondent received no dearness allowance, so the relevant wage components required reconsideration without treating special allowance as includable.

pp. 8–12 · ¶ 7.1, 9–9.1

Although the statutory appeal had been dismissed for delay, the Court set aside both authorities’ orders and remitted the original application for fresh consideration under the applicable law.

pp. 9–12 · ¶ 7.2–10