Kerala High Court Upholds Law That Limits Interest On Delayed Gratuity To Gratuity Amount

Justice Gopinath P was considering a writ petition filed by a retired employee challenging the provision after he was denied a portion of the interest recovered from his employer through revenue recovery proceedings.

The petitioner, a former employee of the Economic Transport Organisation, had been awarded gratuity of ₹1,88,752, together with statutory interest, by the Controlling Authority under the Payment of Gratuity Act. Following the employer's failure to comply with the order, the authorities initiated revenue recovery proceedings and recovered ₹4,57,219 from the employer.

However, the petitioner received only ₹3,77,504, as the Controlling Authority applied the second proviso to Section 8 of the Act, which stipulates that the interest recoverable cannot exceed the amount of gratuity payable. Aggrieved by this limitation, the petitioner approached the High Court challenging the constitutional validity of the proviso.

The petitioner argued that while Section 7(3A) of the Payment of Gratuity Act provides for payment of simple interest on delayed gratuity without prescribing any ceiling, the second proviso to Section 8 imposes a cap only when recovery is effected through statutory recovery proceedings.

The petitioner argued that this resulted in unequal treatment between employees whose employers voluntarily comply with gratuity orders and those compelled to resort to revenue recovery proceedings. It was further argued that the distinction was arbitrary and violative of Article 14 of the Constitution.

The Government Pleader, on the other hand submitted that provisions to sub-section (3A) of Section 7 of the Act states that the gratuity can be recovered with simple interest at a rate not exceeding the rate notified by the Central Government.

It was further submitted that the provisions of Section 7 must be read along with the provisions of Section 8 and the amount of interest payable by virtue of the provisions contained in sub-section (3A) of Section 7 of the Act cannot, at any rate, exceed the maximum interest permissible under the second proviso to Section 8 of the Act.

The Court rejected the petitioner's interpretation of Sections 7 and 8 and observed that Section 7(3A), which provides for payment of simple interest on delayed gratuity, must be read harmoniously with Section 8 of the Act.

The Court found nothing in Section 7 indicating that the statutory restriction contained in the second proviso to Section 8 ceases to apply merely because interest is payable under Section 7(3A).

“There is nothing in Section 7 or sub section (3A) of Section 7 of the 1972 Act that would indicate that the restriction contained in the second proviso to Section 8 of the 1972 Act, which provides that the total interest shall not exceed the amount of gratuity, is not applicable when interest is paid pursuant to a determination under Section 7 of the 1972 Act.” Court observed.

The Court reiterated that legislation can be struck down only on well-recognised constitutional grounds, such as violation of fundamental rights, lack of legislative competence, infringement of the Constitution's basic structure, or manifest arbitrariness, as recognised by the Supreme Court in Shayara Bano v. Union of India [2017 (9) SCC 1). None of these grounds, the Court held, had been established.

The Court further observed that fixing a ceiling on recoverable interest is a matter of legislative policy.

Emphasising the principle of harmonious construction, the Court held that Sections 7 and 8 of the Payment of Gratuity Act complement each other and should be interpreted in a manner that gives effect to both provisions rather than treating them as conflicting.

The Court thus dismissed the writ petition and upheld the validity of the second proviso to Section 8 of the Payment of Gratuity Act, 1972.

Case Title: P. Gopinathan v Union of India

Case No: WP(C) 2393/ 2017

Citation: 2026 LiveLaw (Ker) 401

Counsel for Petitioner: P.B. Krishnan (Sr.) P.M. Neelakandan, S. Nithin, Sabu George, P. B. Subramanyan

Counsel for Respondents: C.G. Preetha, K. Malini, O.M. Shalina, Chithra P. George (GP)