S. Siri Jagan, J.

A very important question affecting the employees of the Co-operative Societies across the State of Kerala arises in this case. The question is whether the gratuity payable to retired employees or legal heirs of deceased employees of Co-operative Societies should be restricted to the maximum prescribed under S.4(3) of the Payment of Gratuity Act, 1972, (for short ‘the Act’), R.59 of the Kerala Co-operative Societies Rules, 1969 (hereinafter referred to as ‘the Rules’) and the bye-laws framed under the said R.59, even in cases where the Societies have entered into arrangement with the L.I.C. to have their liability for payment of gratuity to its employees insured as per the “Employees Group Gratuity Life Assurance Scheme” of the L.I.C., as per which more amounts than the statutory maximum payable as per S.4(3) of the Payment of Gratuity Act, R.59 and bye-laws of the society are payable to the employees.

2. The facts of the case fall in a narrow compass. According to the petitioners, the 1st respondent-Society had constituted a Gratuity Fund Trust under the Payment of Gratuity Act in order to ensure payment of gratuity to its employees as per the Act. The Society entered into an agreement with the L.I.C. of India under which the L.I.C. of India assured payment of gratuity to the employees of the Society as per the master policy, two pages of which are produced as Ext.P1. The petitioners submit that by Ext.P1, the L.I.C. has taken over the liability of the Society to pay gratuity to its employees by paying the sum assured by Ext.P1, to retiring employees or legal heirs of deceased employees. In Ext.P1, the sum assured as per the policy is described thus:

“B. Assurance and Premiums:-­

1. Sum assured: The sum assured under the Pure Endowment Assurance shall be an amount equal to 15 days salary of the member as on the entry date or the annual renewal date, as the case may be, for each year of service up to the Normal Retirement date subject to the maximum of 20 month’s salary”.

3. One P.K. Krishnan retired as the Secretary of the 1st respondent Society on 18.2.1995 and he expired on 29.3.1996. His last drawn salary was Rs.7380/- per month. He had continuous service of 29 years at the time of retirement. Calculated in accordance with the terms of Ext.P1 policy, the total amount of gratuity due to him was Rs.1,23,473/- (7380 x 15/26 x 29) which is less than the maximum prescribed as per Ext.P1. Out of this, Rs.75,000/- was paid to the said Krishnan on his retirement. After his death, his legal heirs, who are the petitioners in this Original Petition, were paid another sum of Rs.25,000/- making a total of Rs.1,00,000/- paid as gratuity. The petitioners now claim the balance amount due to them as per Ext.P1 policy. According to the petitioners, although at the relevant time, the maximum amount of gratuity payable as per S.4(3) of the Act, at it stood then, was Rs.1 lakh, Ext.P1 represented a contract for payment of better terms of gratuity which is saved by S.4(5) of the Act. On receipt of representations from the petitioners, the 1st respondent sought clarification from respondents 2 and 3 who advised them that no amount in excess of the maximum described under the Act can be paid to a retired employee as gratuity, apparently based on Ext.R3(d) communication from the Registrar of Co-operative Societies.

4. The 3rd respondent has filed a counter affidavit in the O.P. According to the 3rd respondent, under R.59 of the Kerala Co-operative Societies Rules, which is framed under S.80(3) of the Kerala Co-operative Societies Act, 1969, a Society cannot make bye-laws providing for gratuity exceeding fifteen month’s pay. As per communication dt.6.7.1995 issued by the Registrar of Co-operative Societies, Thiruvananthapuram, employees of Co-operative Societies shall be paid gratuity up to the maximum of Rs.1 lakh in accordance with amended S.4(3) of the Act. They also contended that the deceased Krishnan is not entitled to