2009 Supreme(Guj) 214

2010 (2) GCD 1258 (Guj)
Hon’ble Mr. Justice K.M. Thaker
Tensile Steel Limited & Another
Versus
Natwarsingh Udesingh Raj
Special Civil Application No. 12879 of 20081—Decided on 08/04/2009

Point in Issue :
Whether Managing Director of the company can be personally held liable to pay gratuity amount to employee.

Headnote:Head Note :

       (a) Payment of Gratuity Act, 1972 — Sections 7(2), 7(3) and 7(3-A) — Gratuity — Liability to pay — Employer has to determine the amount of gratuity and arrange for payment — Impugned order making Managing Director personally liable for payment of gratuity amount is not sustainable set aside — However, Court put a rider that Managing Director would ensure payment of gratuity in accordance with law.

       Held :

       The Act does not provide for such eventuality nor dose it contain such provision and/or does not cast such obligation and that therefore the Managing Director cannot be made personally liable to pay the amount of gratuity to the concerned persons and hence, the said direction is not sustainable and the same deserves to be set aside and accordingly, it is set aside, though, of course, with a rider that the Petitioner No. 2 Managing Director would be responsible, for ensuring payment of gratuity in accordance with law and that too from the assets and property of the Company in his official capacity, being the Managing Director, as “employer” unless the affairs of the Company and the control thereof have been entrusted to any other person. In this regard reference needs to be made to the provision under Sections 7(2), 7(3) and 7(3A) as per which an “employer” has to determine the amount and it is the “employer” who shall arrange to pay gratuity, from the date when it becomes payable and if it is not paid by the “employer” within the prescribed period then “employer” will pay interest”.

       If the ultimate control of the affairs of the establishment / factory was vested in the Managing Director in the petitioner - Company and such affairs were not entrusted to any other person, then Managing Director would be responsible for payment but if such affairs were entrusted to any other person e.g. Manager then such other person would be responsible and not the Managing Director. However, even in the former situation the Managing Director would be responsible to discharge the obligation only in his official position / capacity i.e. as “employer” but he would not, in such case also, be personally liable to discharge the obligation from his personal property, assets or sources.

        [Para 5.1]

       Head Note :

       (b) Payment of Gratuity Act, 1972 — Section 7(3-A) — Interest — Liability only payment of simple interest as notified by Central Government — Order to pay compound — Interest on the amount of gratuity is not provided in the Act — Hence impugned order is not sustainable set aside.

       Held :

       So far as the contention regarding direction for payment of interest is concerned, the directions which are contrary to the provision in the Act regarding interest, cannot be sustained. As per the provisions under Section 7(3)(A), the Statute prescribes for payment of “simple interest” at the rate notified by the Central Government. Under the Rules, the rate of interest fixed by the Government is 10%. However, the Act and/or Rules do not provide for payment of interest on interest or “compound interest” i.e. at the compounding rate. The statute provides for “simple interest”. The impugned directions would amount to granting interest over interest or “compound interest” which is not provided for in the Act / Rules or contemplated under the Act / Rules. Hence, the said direction also deserves to be set aside and accordingly, it is hereby set aside. [Para 6]

       Head Note :

       (c) Payment of Gratuity Act, 1972 — Section 4(1) second proviso — Payment of Gratuity (Central) Rules, 1972 — Rule 5(2) and Rule 5(3) — Application for gratuity — Legal heir is eligible to claim amount — Absence of nomination is no bar — Impugned order of controlling, therefore, on that account can not be faulted.

       Held :

       True it is that the statute requires a workman to make “nomination” at the time of entry into the employment. However, if the applicants have not produced before the Controlling Authority the proof that they are the “nominees” of the deceased and / or if no “nomination” is made by the deceased employees then the employer would, upon proper identification, be required to pay the amount of gratuity to the “heirs” of concerned deceased employee and in the event of employer’s default it would be legal and within the jurisdiction for the authority to direct the employer to pay gratuity to an “heir”. In absence of any nomination, the amount can be paid by the Controlling Authority to the heirs of the deceased employees. The Controlling Authority may direction to make such payment either on the basis of the succession certificate or other legal basis/manner, but that would not, in any manner, permit an employer to not to pay gratuity and/or to delay the payment and/or to withhold the payment and it would also not invalidate the order of the Controlling Authority but the heirs would eligible to receive the payment upon producing evidence acceptable in law. However, the order cannot be set aside on the ground that on the record of the company duly made nomination is not available or that the applicants did not produce any evidence to establish that they are the heirs of the deceased employees. Further, such evidence will be necessary at the time of actual payment and not at the time of adjudication. Therefore also the order cannot be faulted. [Para 7.6]

       Head Note :

       (d) Payment of Gratuity Act, 1972 — Gratuity — Payment of gratuity amount — Not permissible or justified to withhold on ground that employees or applicants have retained the quarters and have not vacated even after retirement or death — In such case it is open to the company to take out action in accordance with law.

       Held :

       The last contention is with respect to the allegations that some of the employees i.e. the applicants in applications have retained the quarters and have not vacated the quarters of the Company’s ownership even after retirement or death, as the case may be.

        [Para 11]

       Assuming that the Company’s allegation is true, then in such cases, it is open for the company to take out action in accordance with law and as per appropriate and applicable provision, however, it is not open, and permissible or justified to withhold the payment of gratuity amount on such ground in the facts of the present case. Even any provision, acceptable and sustainable in law, is not pointed out. [Para 11.1]