Gratuity : 6% Or 10% Interest For Delayed Payment Of Gratuity? Supreme Court To Consider

The Supreme Court has issued notice on a petition filed challenging the order passed by the Orissa High Court upholding the reduction in interest on delayed payment of gratuity amount from 10% to 6% based on provisions of Interest Act instead of the Payment of Gratuity Act.

A Bench comprising Justice DY Chandrachud and Justice Surya Kant has issued notice returnable in 12 weeks and has directed the counter affidavits to be filed in 6 weeks.

During the hearing, Advocate Madhusmita Bora, counsel appearing on behalf of the petitioner made the following submissions:

• Following the amendment to Section 7 of the Payment of Gratuity Act 1972 by the insertion of sub-section 3(a), simple interest became liable to be paid for the delay in disbursing gratuity
• A notification has been issued by the Union Ministry of Labour on 1 October 1987 by which the rate of interest has been prescribed at 10% per annum;
• Hence, the Single Judge erred in reducing the interest payable to the petitioner on the delayed payment of gratuity from 10% to 6% per annum.

The present Special Leave Petition has been filed against the Division Bench's order dismissing the writ appeal and confirming the Single Judge's order directing interest on the delayed payment of gratuity at 6% per annum instead of 10% per annum as claimed.

The High Court in the Impugned Order held that there is no provision as such in the Payment of Gratuity Act prescribing any mandatory minimum rate of interest on delayed payment.

The Court further observed that the Single Judge had after examining the provisions of the Interest Act, directed that instead of 10% interest on delayed payment of gratuity amount as claimed, it would be appropriate in the interest of justice, if interest for the delayed period is at the rate of 6% per annum and hence no error has been committed by Single Judge.

The special leave petition filed through Advocate Madhusmita Bora has argued that the High Court ought not to have applied the provisions of Interest Act, instead of the Payment of Gratuity Act, 1972 since the case of the Petitioner is squarely covered under the Payment of Gratuity Act, 1972.

According to the petition, the issue in the case refers to substituting the percentage of the interest on account of delay in granting the gratuity from 10% to 6%, overlooking the applicability of the judgment passed in Paradeep Port Trust v. Controlling Authority and others in W.P. (C) 13892 of 2005 whereby it has been held that the applicability of the Payment of Gratuity Act, 1972 will be effective from 24.05.1994 in reference to the letter issued by the Government of India, Ministry of Transport and Shipping (Port Wing) dated 19.03.1996.

Background:

The Petitioner was serving as an executive engineer at Paradip Port Trust, Orissa (Respondent No.1 herein) and has been aggrieved since the year 2002, being superannuated on 28.02.2002 after being in service for more than 38 years.

The present Petitioner had filed Form N before the Assistant Labour Commissioner(C), Bhubaneshwar, claiming interest on gratuity which was paid to him belatedly.

The Assistant Labour Commissioner(C), Bhubaneshwar appreciating the applicability of the Payment of Gratuity Act, 1972 directed the management of the Pradip Port Trust to pay simple interest at the rate of 10% per annum to the Petitioner. 

The Respondent Port Trust preferred an application before the Appellate Authority, however, the Regional Labour Commissioner (C), Bhubaneshwar confirmed the Order passed by the Assistant Labour Commissioner.

The Respondent then preferred a writ petition before the High Court of Orissa, Cuttack challenging the Order dated 10.10.2012 passed by the Controlling Authority and Order dated 26.07.2013 passed by the Appellate Authority.

The Single Judge reduced the interest accrued on the delay in release of gratuity from the employer i.e. Respondent No.1. from 10% pursuant with Payment of Gratuity Act, 1972 to 6% per annum pursuant to the Interest Act.

 The Petitioner appealed before the Division Bench of the High Court whereby the same was dismissed. It was also held by the Division Bench of the High Court that there is no provision as such in the Payment of Gratuity Act prescribing any mandatory minimum rate of interest on delayed payment.

Case Title: Gahan Bihari Prusty vs Paradip Port Trust & Ors , SLP (C) 4468/2022

Click here to read/download the order