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IN THE HIGH COURT OF KERALA AT ERNAKULAM
N. NAGARESH, J.
K.R. Unnikrishnan, S/o. Raman & Ors. - Petitioners
Versus
The State of Kerala, Rep. by the Principal Secretary Industries, Electronics and IT Department & Ors. - Respondents
W.P.(C) Nos. 20702 of 2020 and 18792 of 2022
Decided On : 24-09-2024
Gratuity - Employees - Payment of Gratuity Act, 1972 - The court interpreted the provisions of the Payment of Gratuity Act, particularly the definition of 'wages' and the employer's discretion to provide higher gratuity, concluding that the company's resolution to include allowances for gratuity calculation was valid and enforceable.
Fact of the Case:
Retired non-managerial employees of a cement company sought revised gratuity, arguing that their benefits were significantly lower than those in other public sector undertakings due to the exclusion of various allowances in the calculation.
Finding of the Court:
The court found that the company's resolution to include allowances in gratuity calculations was valid and that the government had approved this proposal, thus the employees were entitled to the revised gratuity.
Issues: Whether the company's resolution to include allowances in the calculation of gratuity was valid and enforceable despite the government's later refusal to approve it.
Ratio Decidendi: The court held that the company's resolution constituted a complete scheme for gratuity calculation, and the government approval was sufficient to enforce the revised gratuity despite subsequent financial claims.
Result: The court set aside the government's decision and directed the company to implement the revised gratuity benefits within two months.
JUDGMENT :
N. Nagaresh, J.
Petitioners are retired non-managerial employees of Malabar Cements Limited, Palakkad. The petitioners seek to direct the respondents to allow revised Gratuity to them.
2. The petitioners state that though the Malabar Cements Limited, Palakkad is in the A Grade category among the Public Sector Undertakings, the wages paid to the non-managerial employees in the Company are only half of the salaries drawn by the non-managerial employees in other A Grade Public Sector Undertakings. The wage structure in the Malabar Cements Limited is governed by the Central Board Settlements reached at National level between Cement Manufacturers Associations and National Trade Unions.
3. The salary structure under Cement Wage Board Award comprises various components, such as Basic pay, Variable Dearness Allowance ((VDA), Fixed Dearness Allowance (FDA) and a group of other allowances, which constitutes 35% of the total pay. These allowances will be excluded while determining the Gratuity amount. Therefore, the non-managerial employees of the Company get a very low amount of Gratuity compared to employees of other Public Sector Undertakings, where the salary elements to be excluded for computing gratuity would be less than 5%.
4. The petitioners state that the non-managerial employees, who have rendered service around more than 30–35 years in Malabar Cements Limited, are getting an average amount of Rs.4 lakhs as Gratuity, as against Rs.10 lakhs received by the non-managerial employees who have rendered service of about 20–25 years in other Public Sector Undertakings. Taking into consideration the aforementioned facts, the Malabar Cements Limited passed Ext.P1 resolution deciding to include various allowances comprising more than 35% of the wage part, for determining Gratuity.
5. Ext.P1 proposal with the recommendations of the Company was forwarded to the Government of Kerala for approval, as per Ext.P2 communication dated 06.10.2017. The Government of Kerala, by Ext.P3 letter dated 17.3.2019 (in W.P.(C) No.18792/2022), approved the proposal and informed the Company that the Government has no objection to frame a scheme/agreement to provide higher Gratuity amount, to those category of employees, by including all allowances, for determining the Gratuity amount.
6. In spite of Ext.P3, the Company took no steps to implement Ext.P1 decision. A representation was therefore submitted to the Minister for Industries as per Ext.P4 (in W.P.(C) No.18792/2022). The said representation was forwarded to the Managing Director of the Malabar Cements Limited as per Ext.P5 (in W.P.(C) No.18792/2022) directing to forward a report. The Government, however, without waiting for a report, took Ext.P6 decision (in W.P.(C) No.18792/2022) rejecting the request to provide Gratuity amount in terms of Ext.P1 decision stating that the financial position of the Company is not conducive to bear the additional expenses.
7. The petitioners state that Ext.P6 decision is not sustainable in law or on facts. The balance sheets of the Company unmistakably reveal profits made by the Company. Every year the Company is paying dividend to the Government of Kerala on the basis of profits made. The petitioners therefore seek to quash Ext.P6 order of the 1st respondent and to allow revised Gratuity to the petitioners.
8. The respondent-Managing Director of Malabar Cements Limited filed counter affidavit in both the writ petitions. The respondent stated that as per the Payment of Gratuity Act, 1972, the definition of ‘wages’ does not include any Bonus, Commission, HRA, Overtime Wages or any other allowances. The Hon’ble Apex Court has clarified the meaning of the expression 'wages' under Section 2(s) of the Payment of Gratuity Act, 1972 and has held that wages will mean and include Basic Wages and Dearness Allowance and nothing else.
9. The respondent further stated that as the Company was running in profit continuously till the financial year 2016-2017, the Management took a l
The Gratuity Act provides overriding rights for gratuity claims that cannot be denied unless specifically exempted by law, even when alternative welfare benefits exist.
The office memorandum dated 26.11.2008 is binding on the Corporation and constitutes an agreement under Section 4(5) of the Payment of Gratuity Act, 1972.
The Payment of Gratuity Act, 1972 overrides contractual agreements, ensuring gratuity eligibility is determined by statutory provisions rather than settlement terms.
Employees are entitled to gratuity benefits as per the terms of their employment scheme, which can exceed statutory limits under the Payment of Gratuity Act.
The Office Memorandum dated 26.11.2008 is advisory and does not impose a binding obligation on public sector undertakings to pay enhanced gratuity prior to the amendment of the Gratuity Act.
State government employees are excluded from the Payment of Gratuity Act, and their gratuity entitlement is regulated by separate Pension Rules, confirming a ceiling limit of Rs. 4 lakh.
Gratuity under the Payment of Gratuity Act cannot be withheld on the basis of dues unless misconduct is established prior to retirement.
The main legal point established in the judgment is that the Payment of Gratuity Act, 1972 applies to the respondent-Corporation and its employees, and the Act's provisions have an overriding effect ....
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