High Court says Employees must get interest if Payment of Gratuity is Delayed by Employer
In a significant ruling, the Jharkhand High Court has confirmed that employers are required to pay interest at a rate of 10% per annum if they delay the payment of gratuity to employees. The ruling, made by Justice Anubha Rawat Choudhary, is in line with a notification issued by the Central Government under Section 7(3-A) of the Payment of Gratuity Act, 1972.
The case involved an employee of Tata Steel Limited who had not received his gratuity payment within the required time frame. As a result, the employee sought the payment of interest on the overdue gratuity amount.
Legal Framework
Section 7(3-A) of the Payment of Gratuity Act, 1972, stipulates that if the gratuity amount is not paid within the specified period, the employer must pay simple interest at a rate set by the Central Government. The government issued a notification on October 1, 1987, specifying the interest rate at 10% per annum for cases of delayed gratuity payments.
Case Background
The Deputy Labour Commissioner-cum-Controlling Authority, Kolhan Division, Jamshedpur, issued an order on August 19, 2021, directing Tata Steel to pay the gratuity amount of Rs. 10,67,308 along with 10% interest per annum within 30 days. Tata Steel challenged this order, arguing that the interest rate should be reduced to 6% or 7%, as they believed the term “maximum” in the Act allowed for a lower rate.
However, the Labour Commissioner-cum-Appellate Authority upheld the original order on March 14, 2023. Unsatisfied with the ruling, Tata Steel filed a writ petition before the Jharkhand High Court.
Court’s Findings
The court clarified that while Section 7(3-A) of the Act provides the framework for determining the interest rate, it does not specify a fixed rate. The Central Government, however, issued a notification setting the interest rate at 10%, which the court confirmed as legally binding.
The court also observed that the notification issued by the government in 1987 did not conflict with the provisions of the Act. The notification was in accordance with the powers granted under Section 7(3-A) and fixed the interest rate at 10% per annum.
The court referred to several precedents, including rulings from the Madras and Allahabad High Courts, where similar decisions had been made regarding delayed gratuity payments and interest rates. In the case of Laxman Singh Bhadauriya vs. Controlling Authority, the Allahabad High Court had similarly upheld the 10% interest rate.
Conclusion
The Jharkhand High Court ruled that the appellate authority’s decision to uphold the 10% interest rate on delayed gratuity payments was correct. The writ petition filed by Tata Steel was dismissed, and the company was directed to comply with the order to pay the overdue gratuity with interest at the specified rate.
The case highlights the importance of adhering to legal provisions for timely payment of employee benefits and the consequences of delays in gratuity payments.
