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CASE NO.:

Appeal (civil) 1024 of 2003

PETITIONER:

H. Gangahanume Gowda

RESPONDENT:

Karnataka Agro Industries Corpn.Ltd.

DATE OF JUDGMENT: 05/02/2003

BENCH:

SHIVARAJ V. PATIL & ARIJIT PASAYAT

JUDGMENT:

J U D G M E N T

(Arising out of Special Leave Petition (C) No.4114 /2002)

SHIVARAJ V. PATIL J.

Leave granted.

A limited point that arises for consideration and

decision in this appeal is whether Division Bench of

the High Court having found the appellant entitled to

interest on belated payment of gratuity was right in

denying the same holding that the discretion exercised

by the learned Single Judge in that regard was not

arbitrary.

While in service, the appellant and few other

officials were kept under suspension in March, 1999.

Aggrieved by the same, the appellant and others filed

writ petition Nos. 11893-11898 of 1999 inter alia

contending that order of suspension passed was one

without authority of law and without application of

mind. After service of notice in the writ petitions,

the respondent-Corporation realizing that it was not

possible to support the said order of suspension,

withdrew the same by an order dated 21.5.1999. Taking

note of the order dated 21.5.1999 revoking the

suspension, the High Court disposed of the writ

petitions as having become infructuous, however,

reserving liberty to the writ petitioner to approach

the High Court for seeking appropriate relief, if

necessary. The appellant reached the age of

superannuation on 1.1.2000 and retired. The

respondent-Corporation did not pass any order regarding

regularization of the suspension period and settlement

of salary and allowances payable to him on retirement.

In this situation, the appellant was constrained to

approach the High Court again in Writ Petition No.

26980 of 2000 seeking payment of full salary and

allowances for the period of suspension, gratuity, cash

equivalent of earned leave together with interest

thereon @ 18% per annum and settlement of provident

fund dues. During the pendency of the writ petition,

however, the respondent settled the provident fund

dues. The High Court disposed of the writ petition on

18.6.2001 holding that since the appellant had retired

from service, the enquiry contemplated earlier could

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not have been proceeded with in the absence of enabling

provision in the service rules of the respondent-

Corporation and consequently granted reliefs to the

appellant except interest on belated payment of

gratuity. The appellant, aggrieved by the order of the

learned Single Judge, to the extent of denial of

interest on the belated payment of gratuity, filed

Appeal No. 4177 of 2001. The Division Bench in the

appeal found that the appellant was entitled to payment

of interest on the belated payment of gratuity, but,

however, held that the discretion exercised by the

learned Single Judge in denying interest was not

arbitrary. In that view, the writ appeal was

dismissed.

The learned counsel for the appellant urged that

claim for interest on belated payment of gratuity is a

statutory right as envisaged under Sections 7 and 8 of

the Act; the High Court committed an error in denying

the same to the appellant on the ground of discretion

on the facts and circumstances of the case. According

to the learned counsel, when the appellant on fact was

found to be entitled to interest, he should not have

been denied the same.

The learned counsel for the respondent-Corporation

argued in support and justification of the impugned

order.

In order to appreciate the above contentions

urged, it is necessary to notice the provisions of the

Payment of Gratuity Act, 1972 (for short 'the Act') to

the extent they are relevant. They are extracted

below:-

"7. Determination of the amount of

gratuity

(1) A person who is eligible for payment

of gratuity under this Act or any

person authorized, in writing to act

on his behalf shall send a written

application to the employer, within

such time and in such form, as may be

prescribed, for payment of such

gratuity.

(2) As soon as gratuity becomes payable,

the employer shall, whether an

application referred to in sub-

section (1) has been made or not,

determine the amount of gratuity and

give notice in writing to the person

to whom the gratuity is payable and

also to the controlling authority

specifying the amount of gratuity so

determined.

...................................

(3A) If the amount of gratuity payable

under sub-section (3) is not paid by

the employer within the period

specified in sub-section (3), the

employer shall pay, from the date on

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which the gratuity becomes payable to

the date on which it is paid, simple

interest at such rate, not exceeding

the rate notified by the Central

Government from time to time for

repayment of long-term deposits, as

that Government may, by notification

specify;

Provided that no such interest

shall be payable if the delay in the

payment is due to the fault of the

employee and the employer has

obtained permission in writing from

the controlling authority for the

delayed payment on this ground.

8. Recovery of gratuity If the amount

of gratuity payable under this Act is

not paid by the employer, within the

prescribed time, to the person

entitled thereto, the controlling

authority shall, on an application

made to it in this behalf by the

aggrieved person, issue a certificate

for that amount to the Collector who

shall recover the same, together with

compound interest thereon at such

rate as the Central Government may,

by notification, specify, from the

date of expiry of the prescribed time

as arrears of land revenue and pay

the same to the person entitled

thereto;

Provided that the controlling

authority shall, before issuing a

certificate under this section, give

the employer a reasonable opportunity

of showing cause against the issue of

such certificate.

Provided further that the amount

of interest payable under this

section shall, in no case exceed the

amount of gratuity payable under this

Act."

It is evident from Section 7(2) that as soon as

gratuity becomes payable, the employer, whether any

application has been made or not, is obliged to

determine the amount of gratuity and give notice in

writing to the person to whom the gratuity is payable

and also to the controlling authority specifying the

amount of gratuity. Under Section 7(3), the employer

shall arrange to pay the amount of gratuity within 30

days from the date it becomes payable. Under sub-

section 3(A) of Section 7, if the amount of gratuity is

not paid by the employer within the period specified in

sub-section (3), he shall pay, from the date on which

the gratuity becomes payable to the date on which it is

paid, simple interest at such rate not exceeding the

rate notified by the Central Government from time to

time for repayment of long term deposits; provided that

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no such interest shall be payable if the delay in the

payment is due to the fault of the employee and the

employer has obtained permission in writing from the

controlling authority for the delayed payment on that

ground. From the provisions made in Section 7, a clear

command can be seen mandating the employer to pay the

gratuity within the specified time and to pay interest

on the delayed payment of gratuity. No discretion is

available to exempt or relieve the employer from

payment of gratuity with or without interest as the

case may be. However, under the proviso to Section

7(3A), no interest shall be payable if delay in payment

of gratuity is due to the fault of the employee and

further condition that the employer has obtained

permission in writing from the controlling authority

for the delayed payment on that ground. Under Section

8, provision is made for recovery of gratuity payable

under the Act, if not paid by the employer within the

prescribed time. The Collector shall recover the

amount of gratuity with compound interest thereon as

arrears of land revenue and pay the same to the person

entitled. A penal provision is also made in Section 9

for non-payment of gratuity. Payment of gratuity with

or without interest as the case may be does not lie in

the domain of discretion but it is a statutory

compulsion. Specific benefits expressly given in a

social beneficial legislation cannot be ordinarily

denied. Employees on retirement have valuable rights

to get gratuity and any culpable delay in payment of

gratuity must be visited with the penalty of payment of

interest was the view taken in State of Kerala & Ors.

vs. M.Padmanabhan Nayyar [1985 (50) FLR 145]. Earlier

there was no provision for payment of interest on the

delayed payment of gratuity. Sub-section (3A) was

added to Section 7 by an amendment, which came into

force with effect from 1st October, 1987. In the case

of Charan Singh vs. M/s. Birla Textiles and Another

[1988 (57) FLR 543 SC], this aspect was noticed in the

following words:

"There was no provision in the Act for

payment of interest when the same was

quantified by the Controlling Authority

and before the Collector was approached

for its realization. In fact, it is on

the acceptance of the position that

there was a lacuna in the law that Act

22 of 1987 brought about the

incorporation of sub-section 3(A) in

Section 7. That provision has

prospective application."

In the background of this legal position, now we

turn to the facts of the present case. The appellant

was under suspension from 15.3.1999 to 21.5.1999. On

attaining the age of superannuation, he retired from

services of the respondent-Corporation on 1.1.2000.

The learned Single Judge, after considering the rival

contentions, disposed of the writ petition issuing

directions to the respondent-Corporation to settle the

full salary and allowances for the period of

suspension, gratuity, cash equivalent to leave salary,

deferred leave, concession amount etc. As regards the

claim of interest on gratuity, the learned Single Judge

held as under:-

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"Since there was a doubt as to whether

the petitioner is entitled to the

gratuity, cash equivalent of leave

salary etc., in view of the divergent

opinion of the Courts during the

pendency of an enquiry proceeding of a

retired employee, in my view, the

petitioner is not entitled to the relief

of interest for the belated payment of

gratuity and other amounts."

It is clear from what is extracted above from the

order of learned Single Judge that interest on delayed

payment of gratuity was denied only on the ground that

there was doubt whether the appellant was entitled to

gratuity, cash equivalent to leave etc., in view of

divergent opinion of the courts during the pendency of

enquiry. The learned Single Judge having held that the

appellant was entitled for payment of gratuity was not

right in denying the interest on the delayed payment of

gratuity having due regard to Section 7(3A) of the Act.

It was not the case of the respondent that the delay in

the payment of gratuity was due to the fault of the

employee and that it had obtained permission in writing

from the controlling authority for the delayed payment

on that ground. As noticed above, there is a clear

mandate in the provisions of Section 7 to the employer

for payment of gratuity within time and to pay interest

on the delayed payment of gratuity. There is also

provision to recover the amount of gratuity with

compound interest in case amount of gratuity payable

was not paid by the employer in terms of Section 8 of

the Act. Since the employer did not satisfy the

mandatory requirements of the proviso to Section 7(3A),

no discretion was left to deny the interest to the

appellant on belated payment of gratuity.

Unfortunately, the Division Bench of the High Court,

having found that the appellant was entitled for

interest, declined to interfere with the order of the

learned Single Judge as regards the claim of interest

on delayed payment of gratuity only on the ground that

the discretion exercised by the learned Single Judge

could not be said to be arbitrary. In the first place

in the light of what is stated above, the learned

Single Judge could not refuse the grant of interest

exercising discretion as against the mandatory

provisions contained in Section 7 of the Act. The

Division Bench, in our opinion, committed an error in

assuming that the learned Single Judge could exercise

the discretion in the matter of awarding interest and

that such a discretion exercised was not arbitrary.

In the light of the facts stated and for the

reasons aforementioned, the impugned order cannot be

sustained. Consequently, it is set aside. The

respondent is directed to pay interest @ 10% on the

amount of gratuity to which the appellant is entitled

from the date it became payable till the date of

payment of the gratuity amount. The appeal is allowed

accordingly with cost quantified at Rs. 10,000/-.