PAYMENT OF GRATUITY (AMENDMENT) ACT, 1987
(1) This Act may be called the Payment of Gratuity (Amendment)
Act, 1987.
(2) It shall come into force on such date1 as the Central Government may, by notification in the Official Gazette, appoint and different dates may be appointed for different provisions of this Act.
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1. 1.10.1987 Vide Notification No. S.O. 873 (E), dated 1.10.1987 (in respect of sections 2, 3 clauses (b) and (c) of section 4, sections 6, 7, 8 and and 9).
In section 2 of the Payment of Gratuity Act, 1972 (hereinafter referred to as the principal Act),--
(i) in clause (e),--
(a) for the words "one thousand and six hundred rupees per mensem", the words "two thousand and five hundred rupees per mensem, or such higher amount as the Central Government may, having regard to the general level of wages, by notification, specify" shall be substituted;
(b) in the Explanation,--
(i) for the words "one thousand and six hundred rupees per mensem", occurring for the first time, the words, brackets and letter "the amount for the time being specified by or under clause (e)" shall be substituted;
(ii) for the words "one thousand and six hundred rupees per mensem", occurrin
In section 2A of the principal Act,--
(a) in clause (1), the words "imposing a punishment or penalty or" shall be omitted;
(b) in clause (2), the following Explanation shall be added at the end, namely: --
"Explanation.--For the purposes of clause (2), the number of days on which an employee has actually worked under an employer shall include the days on which--
(i) he has been laid-off under an agreement or as permitted by standing orders made under the Industrial Employment (Standing Orders) Act, 1946(20 of 1946), or under the Industrial Disputes Act, 1947(14 of 1947), or under any other law applicable to the establishment;
(ii) he has been on leave with full wages, earned in the previous year;
In section 4 of the principal Act,--
(a) in sub-section (1), for the second proviso, the following shall be substituted, namely:--
"Provided further that in the case of death of the employee, gratuity payable to him shall be paid to his nominee or, if no nomination has been made, to his heirs, and where any such nominees or heirs is a minor, the share of such minor, shall be deposited with the controlling authority who shall invest the same for the benefit of such minor in such bank or other financial institution, as may be prescribed, until such minor attains majority.";
(b) in sub-section (2), the following Explanation shall be inserted at the end, namely:--
"Explanation--In the case of a monthly rated employee, the fifteen days' wages shall be ca
Legal Comments
Practical take-away - Section 4 (1)-(3), Section 7 (2)-(3-A), and Section 8 together create a structured regime: entitlement, timely payment, and penalties/interest for non-compliance, with robust recovery mechanisms and overriding central framework. [L. S. PATEL VS M. P. STATE CO-OPERATIVE DAIRY FEDERATION LTD. ] [UNIVERSITY OF DELHI VS KANWAR KUMAR GAMBHIR]
After section 4 of the principal Act, the following new section shall be inserted, namely:--
'4A. Compulsory insurance.--
(1) With effect from such date as may be notified by the appropriate Government in this behalf, every employer, other than an employer or an establishment belonging to, or under the control of, the Central Government or a State Government, shall, subject to the provisions of sub-section (2), obtain an insurance in the manner prescribed, for his liability for payment towards the gratuity under this Act, from the Life Insurance Corporation of India established under the Life Insurance Corporation of India Act, 1956(31 of 1956) or any other prescribed insurer:
Provided that different dates may be appointed for different establishments or class of establishments or for differen
Legal Comments
Section-5 - Power to exempt - Expanded by amendments - [Various sources discuss Section 5 and its interplay with amendments (e.g., 1987 Amendment Act) allowing better terms under other instruments; also noted in cases interpreting Section 4(5) safeguards] - [Krishna Gopal Tiwary VS Union of India]
Section-5(1) - Scope to grant exemption from Act or to provide better terms under contract - [Consecutive cases emphasize that Section 4(5) preserves better terms under awards, contracts; Section 5 aligns with statutory protection for higher gratuity terms] - [Surinder Kaur Nayak VS Chief Personnel Manager, Syndicate Bank Ltd. ]
Essential ingredients - "employee" status, "wages" basis, "gratuity" entitlement on retirement with a statutory ceiling, and potential better terms under contract - [00700046425], [Gautam Sarkar VS State of West Bengal]
Essential ingredients - Delay in payment triggers interest under Section 7(3A); rate set by Central Government notification; exceptions if delay due to employee fault or with permission - [Gautam Sarkar VS State of West Bengal], [R. Veeraragavan & Others VS The State of Tamil Nadu rep. By the Secretary to Government, Law Department, Madras & Others]
Scope of Section - Applies to all establishments covered by the Act; universal applicability of revised ceilings post-amendment; Rule 5/Regulations may be brought within the Act via Section 4/7 interplay - [Debasish Sengupta VS State of Tripura], [Transport Manager, Kolhapur Municipal VS Pravin Bhabhutlal Shah & others]
Punishment for Section - Not a direct criminal punishment; penalties arise as statutory interest under Section 7(3A) and recovery through Section 8 as arrears of land revenue; non-payment may invite interest and recovery procedures - [LALITKUMAR D. THAKKAR VS CONTROLLING AUTHORITY and ASSTT. LABOUR COMMISSIONER], [Muthukumaran Institute of Technology VS J. Rajalakshmi]
Interest rate - Central Government notified rates (historically 10% p.a. then amended to 7-10-12% variants); Supreme Court and High Courts have held interest mandatory for delayed gratuity payments unless employee fault or permitted delay; retrospective vs prospective application clarified - [S. N. VASUDEVAIAH VS APPELLATE AUTHORITY UNDER PAYMENT OF GRATUITY ACT, 1972 AND DEPUTY LABOUR COMMISSIONER, REGION-1], [Gautam Sarkar VS State of West Bengal], [The Chairman Bar Council of Tamil Nadu High Court Campus Chennai & Another VS S. Seshachalam & Others]
Ceiling revisions - 2018 amendment raising ceiling to Rs. 20,00,000; universal applicability across establishments; entitlement to balance gratuity with interest if underpaid - [Kirit Bhattacharjee VS State of Tripura], [Bhumi Singh vs Himachal Pradesh Tourism Development Corporation]
Retrospective vs prospective - Amendments like 1987 (3A) are prospective; amendments in 2009 and 2010 regarding teachers and ceilings considered with retroactive/retrospective effect debated; Supreme Court clarifications limit retroactivity to defined dates - [WIMCO LIMITED VS APPELLATE AUTHORITY UNDER PAYMENT OF GRATUITY ACT], [MANAGER, RAIBAG TALUK PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK LIMITED, RAIBAG, BELGAUM DISTRICT VS DEPUTY REGISTRAR OF CO-OPERATIVE SOCIETIES, BELGAUM 1], [Gautam Sarkar VS State of West Bengal]
Employee classification - Amendments extending Section 2(e) to include teachers (and other categories) affecting eligibility; retrospective application debated, often upheld for rights accruing on or after amendment date - [Gautam Sarkar VS State of West Bengal], [GELLA RAM VASWANI VS MUNICIPAL CORPORATION OF DELHI]
Differential treatment across sectors - Courts have held that statutory enhancements apply universally (e.g., revised ceilings irrespective of controlling government body) to avoid discrimination and ensure equal relief - [Kirit Bhattacharjee VS State of Tripura], [Swadesh Deb VS State of Tripura]
Calculation mechanics - Gratuity computed on last drawn wages with respect to the service period; Explanation to Section 4(2) (and similar governance) governs computation when ambiguities exist; courts emphasize the primary method is statutory unless better terms exist via Section 4(5) - [Transport Manager, Kolhapur Municipal VS Pravin Bhabhutlal Shah & others], [Tata Steel Limited VS State of Jharkhand]
Domestic comparative-illustrative rulings - Delhi University and University of Delhi decisions affirm applicability of Gratuity Act to university employees; interest considerations align with Section 7(3A) jurisprudence - [UNIVERSITY OF DELHI VS KANWAR KUMAR GAMBHIR], [Muthukumaran Institute of Technology VS J. Rajalakshmi]
Pension vs gratuity interplay - Some cases address withdrawal or offsetting gratuity against other retirement benefits; Court consistently treats gratuity as a separate statutory entitlement, subject to exceptions in Section 4(6) and 7(6-7) rules - [Gautam Sarkar VS State of West Bengal], [Muthukumaran Institute of Technology VS J. Rajalakshmi]
Deductions from gratuity - Deductions permitted only as per statute (e.g., for damages under Section 4(6) in certain circumstances; otherwise not) and cannot be arbitrarily set off from gratuity; last-month salary/deductions under Wages Act may be set off in limited contexts - [JAGANNATH BARIK VS ORISSA KHADI AND VILLAGE INDUSTRIES BOARD], [Deputy Executive Engineer, Public Health Works Sub Division VS Chandubhai Chelabhai Patel]
Employer liability - Central jurisprudence holds that the employer’s obligation to pay gratuity is a statutory mandate; failure triggers interest and, if necessary, recovery through collectors; discretion to deny interest is narrow or non-existent except as provided (fault of employee; permission) - [02100026421], [LALITKUMAR D. THAKKAR VS CONTROLLING AUTHORITY and ASSTT. LABOUR COMMISSIONER]
Beneficiary-rights continuity - Amending acts should not destroy accrued rights on retirement; vested rights to gratuity are protected by amendments that preserve or expand entitlements, not retract them retroactively without explicit mandate - [KMML Retired Officers Association VS State of Kerala], [Kerala Electrical A. E. Co. Ltd. VS Raveendran Pillai]
Co-operative societies and statutory overlap - Preambles and case-law show gratuity Act applies as a complete code; when a co-operative society has its own rules, Section 14 override may apply; remedy approaches through controlling authority remain appropriate - [MANAGER, RAIBAG TALUK PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK LIMITED, RAIBAG, BELGAUM DISTRICT VS DEPUTY REGISTRAR OF CO-OPERATIVE SOCIETIES, BELGAUM 1], [STATE OF WEST BENGAL VS DEEKAY COCOANUT OIL INDUSTRIES. ]
Regime for teachers under amendments - Independent Schools’ Federation of India (Regd.) v. UOI and similar rulings establish that teachers in service as on 3 April 1997 with 5 years’ service may be entitled to gratuity post-amendment; retroactivity factors considered - [Gautam Sarkar VS State of West Bengal], [Bindra Prasad Patel vs State Of UP]
Practical relief directions - Courts frequently direct payment of the differential gratuity with interest within specified time frames (often 3-6 months) and specify interest at 7-12% depending on jurisdiction and amendment date - [Asish Kanti Saha VS State of Tripura], [Kirit Bhattacharjee VS State of Tripura], [Gautam Sarkar VS State of West Bengal]
Regulatory citations - References to Regulation 5 (State Bank Hyderabad), CCS Pension Rules, and other statutory instruments underpin computing and enforcing gratuity rights; cross-referencing to sections 4, 7, 8, and 13A - [State Bank of Hyderabad, Rep. by Managing Director, Head Office, Gunfoundry, Hyderabad VS Regional Labour Commissioner (Central) and Appellate Authority under Payment of Gratuity Act, ATI Campus], [GELLA RAM VASWANI VS MUNICIPAL CORPORATION OF DELHI], [Gautam Sarkar VS State of West Bengal]
Discretionary power under Section 5 - The Act contemplates exemptions or better terms only in certain contexts; the essential philosophy remains ensuring gratuity as a right, with statutory protections against arbitrary denial - [Sunil Kumar S VS Assistant Registrar Of Co Operative Societies Thiruvalla], [P. Sreedharan, Son Of Krishna Kurup VS Kerala Co-Operative Tribunal]
Non-retroactivity clarifications in case-law - Supreme Court and High Courts discuss when amendments apply to pre-amendment retirements; the general stance is that retrospective application is limited to the statutory text and specific transitional provisions - [WIMCO LIMITED VS APPELLATE AUTHORITY UNDER PAYMENT OF GRATUITY ACT], [The Chairman Bar Council of Tamil Nadu High Court Campus Chennai & Another VS S. Seshachalam & Others]
Administration and remedies - Jurisdiction and remedy through Controlling Authority, Appellate Authority, and Collector under Section 8; if not satisfied, mandamus or writ petitions can address delays and ensure timely payment with interest - [Gautam Sarkar VS State of West Bengal], [Muthukumaran Institute of Technology VS J. Rajalakshmi]
Summary takeaway - Section 5, in combination with 4/7/3A/8, creates a robust framework ensuring gratuity payments are timely, with interest protections for delays, and allowing better terms to be honored where supported by award/contract, all while addressing retrospective applicability and cross-sector consistency - [Gautam Sarkar VS State of West Bengal], [Kirit Bhattacharjee VS State of Tripura]
In section 5 of the principal Act, after sub-section (2), the following sub-section shall be inserted, namely:--
"(3) A notification issued under sub-section (1) or sub-section (2) may be issued retrospectively a date not earlier than the date of commencement of this Act, but no such notification shall be issued so as to prejudicially affect the interests of any person.".
In section 7 of the principal Act, for sub-section (3), the following sub-sections shall be substituted, namely:--
"(3) The employer shall arrange to pay the amount of gratuity within thirty days from the date it becomes payable to the person to whom the gratuity is payable.
(3A) If the amount of gratuity payable under sub-section (3) is not paid by the employer within the period specified in sub-section (3), the employer shall pay, from the date on which the gratuity becomes payable to the date on which it is paid, simple interest at such rate, not exceeding the rate notified by the Central Government from time to time for repayment of long-term deposits, as that Government may, by notification specify:
Provided that no such interest shall be payable if the delay in the payment is due to the
In section 8 of the principal Act,--
(a) for the words "at the rate of nine per cent. per annum", the words "at such rate as the Central Government may, by notification, specify" shall be substituted;
(b.) the following provisos shall be added at the end, namely: --
"Provided that the controlling authority shall, before issuing a certificate under this section, give the employer a reasonable opportunity of showing cause against the issue of such certificate:
Provided further that the amount of interest payable under this section shall, in no case exceed the amount of gratuity payable under this Act:".
In section 9 of the principal Act,--
(a) in sub-section (1), for the words "one thousand rupees", the words "ten thousand rupees" shall be substituted;
(b) in sub-section (2),--
(i) for the words "which may extend to one year, or with fine which may extend to one thousand rupees, or with both", the following shall be substituted, namely:--
"which shall not be less than three months but which may extend to one year, or with fine which shall not he less than ten thousand rupees but which may extend to twenty thousand rupees, or with both":
(ii) in the proviso, for the words "three months", the words "six months but which may extend to two years" shall be substituted.
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