THE PAYMENT OF GRATUITY

ACT,1972

INTRODUCTION
The Working journalists ( Conditions of Service) and Miscellaneous Provisions Ac, 1955
(45 of 1955) under section 5 provided for the payment of gratuity to the journalist. But there was
no other Central Act which provide for the payment of gratuity to industrial workers. The
Goverment of Kerala enacted legislation for payment of gratuity to workers employed in
factories, plantations, shops and establishments. The Governor of West Bengal promulgated an
Ordinance on 3rd June, 1971 wherein a scheme for payment of grtauity was enacted. The
Ordinance was later replaced by the West Bengal Emplpoyes’ Payment of Compulsory Gratuity
Act, 1971 enacted by the president on 28th August 1971. Gratuity was also being paid by some
employers to their workers under Awards and Agreements. since the enactment of the Kerla and
West Bengal Acts, some other State Goverments also wanted to enact similar measures. taking into
account the intention of the State Govermnets it was felt necessary to have a Central law on the
subject so as to ensure a uniform pattern of payment of gratuity to the employees through out the
country. The proposal for Central legislation on gratuity was discussed in the Labour ministers’
Conference held at New Delhi on 24th and 25th August, 1971 and also in the Indian labour
conference at its session held on 22nd and 23rd October, 1971. There was general agreement at
the Labour Ministers, conference and the Indian Labour Conference that Central legislation on
payment of gratuity might be under taken at the earlist. Accordingly the Pay- ment of Gratuity Bill
was introducted in the Parliament.
STATEMANT OF OBJECT AND REASONS
There is at present no Central Act to regulatet the payment of gratuity to industrial
workers, except the Working Journalists (Conditions of Service) and Miscellaneous Provisions
Act, 1955. The Government of Kerla enacted legislation last year for payment of gratuity to
workers employed in factories, plantations, shops and establishments. The West Bengal Governor
Promulgated an Or- dinance on the 3rd june, 1971 prescribing a similar scheme of gratuity. This
Ordiance has since been replaced by the West Bengal Employees’ Payment of Compulsory
Gratuity Act, 1971, enacted by the President on 28 th August, 1971. Gratuity is also Being paid by
some employers to their workers under Awards and Agreements.
Since the enactment of the Kerla and the West Bengal Acts, some other State Goverments
have also voiced their intention of enactingsimilar measures in their respective States. It has
become necessary, therefore, to have a Central law on the subject so as to ensure a uniform pattern
of pay- ment of gratuity to the employees throughout the country. the enactment of a Central law
would also avoid different treatment to the employees of estsablishmants having branches in more
than one State when, under the conditions of their service, the employees are liable to transfer
from one State to another.
The proposal for Central legislation on gratuity was discussed in the Labour Ministers’
Con- ference held at New Delhi on 24th and 25 th August, 1971 and also in the Indian Labour
Conference at its session held on the 22nd and 23rd October, 1971.
There was general agreement at the Labour Minister’ Conference and the Indian Labour Conference
that Central legislation on payment of gratuity might be under taken as early as possible. it is
accord- ingly proposed to undertake such legislation.
In enacting the President’s act for west Bengal in August 1971, care has been taken to so
design its provisions that they could serve as far as possible as norms for the Central law. the Bill
has, therfore, been draftyed on the lines of the West Bengal Employees’ Payment of Compulsory
Gratuity Act, 1971 with some modifications which have been made in the light of teh views
expressed at the Indian Labour Conference relating to forefeiture of grtauity in cases of dismissal
for gross misconduct.
The Bill provides for gratuity to employees drawing wages up to Rs. 270/- permonth in
facto- ries, plantations, shops, establishments and mines, in the event of superannuation, retirement,
resigna- tion and death or total disablement due to accident or disease, The quantum of gratuity
payable will be 15 days’ wages based on the rate of wages last drawn by the employees concerened
for every com- pleted year of service or part thereof in the excess of six months subject to a
maximum of 15 months’wages. The term “wages” will mean “ basic wages plus dearness
allowances”.
It is proposed that the appropriate Government for administering the Act in relation to estab-
lishment belonging to or under the control of the Central Goverment or a railway company, or mine,
a major port and oilfield or in relation to establishments having departments or branches in more
than one State, will be Central Government, and in relation to other establishmnets, the State
Government.
The Bill seeks to give effect to the above proposals.

ACT 39 OF 1972
The Payment of Gratuity Bill having been passed by bothe the Houses of Parliament
received the assent of the President on 21st august, 1972. It came into force on 16th September,
1972 as THE PAYMENT OF GRATUITY ACT, 1972 (39 of 1972).

LIST OF AMENDING ACTS

1. The Payment of Gratuity (Amendment ) Act, 1984 (25of 1984).
2. The Payment of Gratuity (Second Amendment ) Act, 1984 (26of 1984).
3. The Payment of Gratuity (Amendment ) Act, 1987 (22of 1987).
4. The Payment of Gratuity (Amendment ) Act, 1994 (34of 1994).
5. The Payment of Gratuity (Amendment ) Act, 1998 (11of 1998).
THE PAYMENT OF GRATUITY ACT,
1972
(39 of 1972) [21st august, 1972]

An Act to provide for a scheme for teh payment of gratuity to employees engaged in
factories,mines, oilfields, plantations,ports,railway companies, shops or other establishments and
for matters connected therewith or incidental thereto.
BE it enacte by Parliament in the Twenty- third Year of the Republic of India as follows:-
1. Short title, extent, application and commencement - (1) This Act may be called the
Payment of Gratuity Act,1972.
(2) It extends of the whole of India.:
Provided that in so far as it relates to plantations or ports, it shall not extend to the State of
Jammu and Kashmir.
(3) it shall apply to-
 (a) every factory ,mine, oilfields, plantation,port,railway company:-
(b) every shop or establishment within meaning of any law for the time being in force
in relation to shops and establishments in a State, inwhich ten or more persons are
employed,
or were employed, on any day of the preceding twelve months.
(c) such other establishments or class of establishments, in which ten or more
employees or employed, or were employed, on any day of the preceding twelve
months, as the Central Government may, by notification, specify in this behalf.
1
[(3A) A shop or establishment to which this Act has become applicable shall continue to
be governed by this Act notwithstanding that the numbar of persons employed therein at
any time after it has become sos applicable falls below ten. ]
(4) It shall come in to force on such date2 as the Central Government may, by notification,
ap point.
COMMENTS
(i) The expression “law” used in section 1(3) (b) means any law in respect of shops, estab
lishments- commercial or non- commercial; K. Gangadhar v. The Appellate Authority
under The Payment of Gratuity Act, (1993) 66 FLR 648 (AP).
(ii) The provisions of section 1(3) (b) of the Act are comprehensive. Municipal Board
is covered under the act; Municipal Board v. Union of India, (1993) 67 FLR, 973
(All).
(iii) Payment of gratuity in a business cannot be regarded as ex gratia and such payment
is, therefore, allowable as business expenditure for income-tax purposes; Commissioner
of Income Tax v. Seshasayee Bros. (Pvt.) Ltd., (1982) 62 FLR 315 (Mad).

1. Ins. by Act 26 of 1984, sec.2

2. Came into force on 16-9-1972, vide S.O.601 (E), dated 16th September, 1972, published in the Gazette of India, Extra., Pt.
II, Sec. 3(ii), p. 1641.
2. Definitions - In this Act, unless the context otherwise requires,-
(a) “ appropriate Government” means,-
(i) in relation to an establishmnet-
(a) belonging to, or under the control of, the Central Government,
(b) having branches in more than one State,
(c) of a factory belonging to, or under the control of, the Central Government,
(d) of a major port, mine,oilfield or railway company, the Central Government,
(ii) in any other cae, the State Government ;
(b) “ completed year of service” means continuous service for one year;
1
[(c) “ continuous service” means continuous service as defined in section 2A;]
(d) “controlling authority’ means an authority appointed by the appropriate
Government under section 3;
(e) “employee” means any person (other than an apprentice) employed on wages, 2[***]
in any establishment, factory, mine, oilfield, plantation, port, railway company or shop
to do any skilled, semi skilled, or unskilled, manual, supervisory, technical or clerical
work, whether the terms of such person is employment are express or implied, 3[and
whether
or not such person is employed in a managerial or adminastrative capacity, but does
not include any such person who who holds a post under the Central Government or
a State Government and is governed by any other Act or by any rules providing for
pay- ment of gratuity].
4
[* * *]
(f) “ employer” means, in relation to any establishment, factory,mine,oilfield, plantation,
port, railway co pany or shop-
(i) belonging to, or under the control of, the Central Government or a State
Government a person or authority appointed by the appropriate government
for the supervision and control of employees, or where no person or authority
has been so appointed, the head of the Ministry or Department concerned,
(ii) belonging to, or under the control of, any local authority, the person appointed
by such authority for the supervision and control of employees or where no
person has been so appointed, the chief executive officer of the local
authority,
(iii) in any other case, the person, who, or the authority which, has the ultimate
control over the affairs of the establishment, factory, mine,oilfield, plantation,
port, railway company or shop, and where the said affairs are entrusted to any
other person, whether called a manager, managing director or by any other name,
such
person;

1. Subs by Act 26 of 1984, sec.3, for clause (c) (w.r.e.f. 11-12-1981).

2. Certain words omitted by Act 34 of 1994, sec.2 (w.e.f. 24-5-1994).
3. Subs. by Act 25 of 1984, sec.2, for certain words (w.e.f. 1-7-1984).
4. Explanation omitted by Act 34 of 1994, sec.2 (w.e.f. 24-5-1994).

2
[* * *]
(g) “ d to it in clause (m) of section 2 of the Factories Act, 1948 (63 of 1948);
fact (h) “family” in relation to an employee, shall be deemeed to consist of-
ory (i) in the case of a male employee, himself,his wife, his children, whether married or
” unmarried, his dependant parents 1[ and thedependent parents of his wife and the
has widow] and children of his predeceased son, if any,
the (ii) in the case of a female employee, herself, her husband, her children, whether
mea married or unmarried, her her dependant parents and the dependant parents of her
nin husband and the widow and children of her predeceased son, if any,
g
assi Explanation.- Where the personal law of an employee permits the adoption by
gne him
of a child, any child lawfully adopoted by him shall be deemed to be include in his family, and
where a child of an employee has been adopted by another person and such adoption is, under
the personal law of the person making such adoption, lawful, such child shall be deemed to be
excluded from the family of the employee;
(i) “major port” has the menaing assigned to it in clause (8) of section 3 of the Indian Ports
Act, 1908 (15 of 1908);
(j) “mine” has the meaning assigned to it in clause (j) of sub-section (1) of section 2 of the
Mines Act, 1952 (35 of 1952);
(k) “notification” means a notification publishe in the Official Gazette;
(l) “oilfield” has the meaning assigned to it in clause (e) of section 3 of the Oilfields
(Regulation and Development ) Act, 1948 (53 of 1948);
(m) “plantation” has the meaning assigned to it in clause (f) of section 2 of the Plantation
Labour Act, 1951 (69 of 1951);
(n) “port” has the meaning assigned to it in clause (4) of section 3 of the Indian Ports Act,
1908 (15 of 1908);
(o) “ prescribed” means prescribed by rules made under this Act;
(p) “railway company” has the meaning assigned to it in clause (5) of section 3 of the Indian
rail ways Act, 1890 (9 of 1890);
(q) “ retirement” means termination of the service of an employee otherwise than on
superannua tion;
3
[(r) “ superannuation”, in relation to an employee, means the attainment by the emplpoyee of
such age as is fixed in the contract and conditions of service as the age on the attainment of
which
the employer shall vacate the employment;]

1. Subs. by Act 22 of 1987, sec. 2, for “and the widow” (w.e.f. 1-10-987).
2. The proviso omitted by Act 22 of 1987, sec. 2 (w.e.f. 1-10-1987).
3. Subs. by Act 25 of 1984, sec.2, for clause (r) (w.e.f. 1-7-1984).
 (s) “wages” means all emoluments which are earned by an employee while on duty or on
leave in accordance with the terms and conditions of his employments and which are paid or are
payable to him in cash and includes dearness allowance but does not include any bonus, commis-
sion, house rent allowances, ovetime wages and any other allowance.
COMMENTS
(i) The phrase “under the control” in clause (a) (i) (a) is the deciding factor regarding
“Ap- propriate Government”. The factor of the “control” is a question of facts and it would be
decide in the merit of each case; NTC v. Addl. Labour Commissioner, (1987) 54 FLR 299 (All)
(ii) Service, whether rendered prior to, or after the commencemet of the Act, has to be
taken in to consideration for the purpose of section 2(c) of the Act; Duncan Agro Industries
Ltd. v. Subhann, (1984) 1 LLJ 96 (AP).
(iii) If the main duties of an employee are only supervisory in nature, then certainly he
can not be excluded from the category of “employee” nor can he be deprived of the
benefits of
this Act, even thoughfor a short period he is reqyired to discharged additional or incidental func-
tions; Vishwanath v. M.P.S.R.T. Corporation, (1987) 55 FLR 1 (Summary) (MP).
(iv) Any workman engaged for work on temporary basis according to the avaibility of
work is not an “employee” within the meaning of section 2(e); K. Velukutty Achary v. Harrisons
Malayalam Ltd., (1993) 66 FLR 423 (Ker) (DB).
(v) A workman who rolls beedis for his employer but at his own house is an “employee”
within meaning of section 2(e) of the Act; P.H. Ramlal & Co. v. Smt. Chand Bibi, (1981) 1 LIC
790 (Guj).
(vi) Home worker is very much a person working in the establishment within the meaning
of section 2(e). since, the place where he rolled the beedies, though situated away from the Beedi
factory, was nevertheless a part of the establishment within meaning of section 2(h) of the Beedi
and Cigar Workers (Conditions of Employment ) Act, 1966. Hence, Home maker is an employee of
the establishment M/s. Bagi Beedi Factory v. Appellate Authority, 1998 LLR 23
(vii) After attaining the age of superannuation no employee is entitled, as a matter of right,
to be in the employment in any establishment; Sir J.P. Srivastava Group of Industries v. State of
U.P./ (1993) 66 FLR 248 (All).
(Viii) “ Incentive wages” are included in the definition of “wages” under section 2(s) of the
Act; Anglo French Textile Ltd. v. P.O.Labour Court, (1981) 58 FJR 252 ( Mad).
1
[2A Continuous service.- For the purposes of this Act,-
(1) an employee shall be said to be in continuous service for a period if he has, for that
period, been in uninterrupted service, including service which may be interrupted
on account of sickness, accident, leave, absence from duty without leave (not being
absence in respect of which an order 2[* * *] treating the absence as break
in service has been passed in accordance with the standing orders, rules or
regulations governing the employees of the estanlishment), lay-off ,
strike or a lock-out or cessation of work not due to any fault of the employee,
whether such uninterrupted or interrupted service was rendered before or after
the commencement of this Act;
(2) where an employee (not being an employee employed in a seasonal establishment ) is
not in continuous service with in the meaning of clause (1), for any period of one
year or six months, he shall be deemed to be in continuous service under the
employer-

1. Ins. by Act 26 of 1984, sec.4 (w.r.e.f. 11-12-1981)

2. The words “imposing a punishment or penalty or” omitted by Act 22 of 1987, se.3 (w.e.f. 1-10-1987).
 (a) For the said period of one year, if the employee during the period of twelve
calendar months preceding the date witht reference to which calculation is too be made,
has actually worked under the employer for not less than-
(i) one hundered and ninety days, in the case of any employee employed below
the ground in a mine or in an establishment which works for less than six days in a
week; and
(ii) two hundered and forty days, in any other case;
(b) for the said period of six months, if the employee during the period of six calendar
months preceding the date with reference to which the calculation is to be made, has
actually worked under the employer for not less than-
(i) ninety-five days, in the case of an employee employed below the ground in
a mine or in an establishment which works for less than six days in a week; and
(ii)one hundered and twenty days, in any other case.
1
[ Explanation.- For the purposes of clause (2) nomber of days on whicn an
employee has actually worked under an employer shall include the days on which-
(i) he has been laid-off under and agreement or as permitted by standing ordes
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 appli
cable to the establishment ;
(ii) he has been on leave with full wages, earned in the preveious year;
(iii) he hasbeen absent due to temporary disablement caused by accident
arrising out of and during the course of his employment; and
(iv) in the case of a female, she has been on maternity leave; so however, that
the total period of such maternity leave does not exceed tweleve weeks.]

(3) where an employee, employed in a seasonal establishment, is not in continuous

service with in the meaning of clause (1), for any period of one year or six months, he shall
be deemed to be in continuous service under the employer for such period if he has
actually worked for not less than seventy five percent, of the number of days on which the
establish ment was in operation during such period.]

COMMENTS
Mere absence cannot be said to result in breach of continuity of service for the pur
pose of the Act; Kothari Industrial Corporation v. Appellate Authority (Deputy
Commissioner of Labour), Karnool, 1998 LLR 223.
3. Controlling authority.- The Appropriate Government may, by notification,
appoint any officer to be a controlling authority, who shall be responsible for the
administration of this Act and different authorities may be appointed for different areas.
4. Payment of grtauity.- (1) Gratuity shall be payablel to an employee on the termina
tion of his employment after he has rendered continuous service for not less than five years,-

1. Added by Act 22 of 1987, sec.3 (w.e.f. 1-10-1987).

 (a) on his superannuation, or
(b) on his retirement or resignation, or
(c) on his death or disablement due to accident or decease:
Provided that the completion of continuous service of five years shall not be necessary
where the termination of the employment of any employee is due to death or disablement:
1[ Provided further that in the case of the death of the employee, grtauity payable to him
shall be paid to his nominee 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, untill such minor attains majority.]
Explanation.- For the purposes of this section, disablement means such disablement as
incapacitates an employee for the work which he was capable of performing before the accident or
disease resulting in such disablement.
(2) For every completed year of service or part thereof in excess of six months, the
employer shall pay gratuity to an employee at the rate of fifteen days’ wages based on the rate of
wages last drawn by the employee concerened:
Provided that in the case of a piece-rated employee, daily wages shall be computed on the
average of the total wages reeived by him for a period of three months immmediately preceding the
termination of his employment, and for this purpose, the wages for paid any overtime work shall
not be taken into account:
Provided further that in the case of 2[an employee who is employed in a seasonal establish-
ment and who is not so employed through out the year], the employer shall pay the gratuity at the
rate of seven days’ wages for each season.
3[ Explanation.- In the case of a monthly rated employee, the fifteen days’ wages shall be
calculated by dividing the monthly rate of wages last drawn by him by twenty-six and multiplying
the quotient by fifteen.]
(3) The amount of gratuity payable to an employee shall not exceed 4[three lakhs and
fifty thousand] rupees.
(4) For the purpose of computing the gratuity payable to an employee who is employed,
after his disablement shall be taken to be the wages received by him during that period, and his
wages for theperiod subsequent to his disablement shall be taken to be the wages as so reduced.
(5) Nothing in this section shall affect the right af an employee to receive better terms
of gratuity under any award or agreement or contract with the employer.
(6) Notwithstanding anything contained inb sub-section (1),-
(a) the gratuity of an employee, whose services have been terminated for any act, wilful
omission or negligence causing any damage or loss to, ordestruction of, property belonging to
the employer’ shall be forefiteed to the extent of the damage or loss so caused;

1. Subs. by Act 22 of 1987, sec. 4 (w.e.f. 2-2-1991).

2. Subs. by Act 25 of 1984, sec. 3 for “an employee employed in a seasonal establishment”(w.e.f. 1-7-1984).
3. Ins. by Act 22 of 1987, sec. 4 (w.e.f. 1-10-1987).
4. Subs. by Act 11 of 1998, sec. 2, for “one lakh”.
 (b) the garatuity payable to an employee 1[ may be wholly or partially forfeited]-
(i) if the services of the such employee have been terminated for his riotous or
disorderly conduct or any other act of violence on his part, or
(ii) if the services of such employee have been terminated for any act which constitutes
by him in the course of his employment.
2
[* * *]
COMMENTS
(i) Gratuity can be withheld if the act for which the services are terminated has resulted in loss. The
amount of gratuity withheld as damages for occupying the quarters of the bank has no connection with the
conduct for which the petitioner’s services were term,inated. The amount cannot be withheld from the
gratuity of the petitioner; H. Rajendra Pal v. Canara Bank, 1998 LLR 419.
(ii) Refusal of employees to surender land belonging to the employer is not a ground withhold
gratuity; Travancore Plywood Industries Ltd. v. Regional Joint Labour Commissioner, (1996) II LLJ 85
(Ker).
(iii) The right of the employer to forfiet the amount of earned gratuity of an employee whose ser-
vices were terminated for any act, wilful omission or negligence causing any damage to the employer is
limited to the extent of damage, with the proof of such damage and its extent being essential; Permali
Wallance Ltd. v. State of M.P., (1996) II LLJ 515 (MP).
(iv) The 5 years’ minimum qualifying period of service for entitlement to gratuity is in
confirmity with the curent reality; Bakhsish Singh v. Darshan Engineering Works, 1994 LLR 81 (SC).
(v) By change of ownership, the relationship of employer and employes subsists and the new em-
ployer cannot escape from the liablity of payment of gratuity tothe employees; Pattathurila K. Damodaran v.
M. Kassim Kanju,(1993) I LLJ 1211 (Ker).
(vi) An employee is entitled to gratuity at the rate of 15 days’ wages for every completed year
of service in terms of section 4(2) of this Act, Binny Ltd. v. Appellate Authority, (1984) 65 FJR
21(Kant).
(vii) right to gratuity is a statutory right; D.V.Kapoor v. Unionm of India, Air 1990 SC 1923.
(viii) An employee should be regular one; Velukutty Achhary v. Harrisons, Malayalam Ltd., (1992) 2
CLR 989 Ker.
(ix) An employee resigning from service is entitled to gratuity; Texmaco Ltd. v. Shri ram Dhan,
1992 LLR 369 (Del).
(x) Non-acceptance of the resignation is no hurdle in the way of an employee to cliam gratuity;
Mettur Spinning Mills v. Deputy Commisioner of Labour, (1983) II LLJ 188.
(xi) A retrenched employee is entitled to gratuity; State of Punjab v. Labour Court, (1980) 1 SCR
953.
(xii) Employer employed ina temple are entitled to grtauity; In re; Administrator, Shree Jagannath
Temple, (1992) 65 FLR 946 (Ori).
(xiii) In order to arrive at the figure of daily wage for the purpose of section 4(2) of the Act,
monthly wages is o be divided by 26 days; Hindustan Lever Ltd. v. Kasargod Devidas Rao., (1990) 61 FLR
6 231 (Bom).
(xiv) when an offence under law involves moral turpitude, gratuity stands wholly forfeited in view
of section 4(6) of the Act; Bharat Gold Mines Ld. v. Regional Labour Commissioner (Central), (1987) 70
FJR 11 (Karn).

1. Sub. by Act 25 of 1984, sec.3, for “shal be wholly forefeited (w.e.f.1-7-1984).

2. Sub- section (7) ins. by Act 25 of 1984, sec.3 and omitted by Act 34 of 1994 (w.e.f. 24-5-1994).
 (xv) An employee who is given the benefit oo fprobation under section 3 of the Probation of
Offenders Act, 1958, cannot be disqualified to receive the anmount of his gratuity; S.N.
Sunderson(Minerals) Ltd. v. Appellate Authority -cum -Deputy Labour Commissioner, (1990) 60
FLR 6 (Summary ) (Mp).
(xvi) Theft amounts to moral turpitude; Bharat Gold Mines Ltd., v. regional
Labour Commissioner, (1987) 1 LLN 308 (Karn).
(xvii) The naominee of an employee can make an application for gratuity without producing
a succession certificate; Nagar Palika v. Appelate authority, (1989) lab IC 173 (All).
(xviii) An employee who is re-employed without any break in service will be eligible for
gratu- ity; Jeevan Lal (1929) Ltd. v. controlling Authority; (1982) 1 LLN 217.
1
[4A compulsory insurance.- (1) with effect from such date as may be notified by the
appro- priate Government in this behalf, every employer, other than an employer or an establishment
belong- ing 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 pay- ments toward the gratuity under this Act, from the Life Insurance Corporation of
India established under the Life Insurane Company of India Act, 1956 (31 of 1956) or any other
prescribed insurer:
Provided that different dates may be appointed for different establishment, or class of estab-
lishments or for different areas.
(2) The appropriate Government may, subject to such conditions as may be prescribed,
exempt every employer who had already established an approved gratuity fund in respect of his
employees and who desires to continue such agreement, and every employer employing five
hundered or more per- sons who establishes an approved gratuity fund in the manner prescribed
from the provisions of sub- section (1).
(3) For the purpose of efectivity implementing the provisions of this section, every employer
shall within such time as may be prescribed get his establishment registered with the controlling au-
thority in theprescribed manner and no employer shall be registered under the provisions of this
secton unless he has taken an insurance reffered to in sub-section (1) or has established an approved
gratuity fund reffered to in sub-section (2).
(4) The apppropriate Government may. by notification, make rules to give effect to the provi-
sions of this section and such rules may provide for the compensation of the Board of Trustees of the
approved gratuity fund and for the recovery bty the controlling authority of the amount of gratuity
payable toan employee from the Life Insurance Corporation of India or any other insurer with whom
an insurance has been taken under sub-section (1), or as the case may be, the Board of Trustees of
the approved gratuity fund.
(5) Where an employer fails to make any payment by way of premium to the insurancer
refered to in sub-section (1) or by way of contribution to an approved gratuity fund referred to in
sub-section (2), he shall be liable to pay the amount of gratuity due under this Act (including
interest, if any, for delayed payments) forwith to the controlling authority.
(6) Whoever contravenes the provisions of sub-section (5) shall be punishable with fine
which may extend to ten thousand rupees and in the case of a continuing offence with a further fine
which may extend to one thousand rupees for each day during wghich the offence continues.

1. Ins. by Act 22 of 1987, sec. 5 (w.e.f. date to be notified).

Explanation ._In this section, “ approved gratuity fund” shall have the same meaning as inclause (5)
of section 2 of the Income- tax Act, 1961 (43 of 1961).]
5. Power to exempt.- 1[(1)] The appropriate Government may, by notification, and subject to
such conditions as may be specified in the notification, exempt any establishment, factory, mine,
oilfield, plantation, port, railway company or shop to which this Act applies from the opreation of
the provisions of this Act if, in the opinion of the appropriate Government, the employees in such
estab- lishments factory, mine, oilfield, plantation, port, railway company or shop are in receipt of
gratuity or pensionary benefits not less favouable than the benefits conferred under this Act.
2
[(2)] The appropriate Government may, by notification and subject to such conditions as
may be specified in the notification, exempt any employee or class of employees employed inany
estab- lishment, factory, mine, oilfield, plantation, port, railway company or shop to which this Act
applies from the opreation of the provisions of this Act if, in the opinion of the appropriate
Government, such employee or class of employees are in receipt of gratuity or pensionary benefits
not less favourable than the benefits conferred under this Act.]
3
[(3) A notification issued under sub-section (1) or sub-sectiopn (2) may be issued
retrospec- tively 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.]
6. Nomination.- (1) Each employee, who has completed one year of service, shall make,
within such time, in such form and in such manner, as may be prescribed, nomination for the
purpose of the second proviso to sub-section (1) of section 4.
(2) An employee may, in his nomination,distrubet the amount of gratuity payable to
him under this Act amongst more than one nominee.
(3) If an employee has a family at the time of making a nomination, the nomination shall
be mede in favour of one or more members of his family, and any nomination made by such
employee in favour of a person who is not a member of his family shall be void.
(4) If at the time of making a nomination the employee has no family, the nomination may be
made in favour of any person or person but if the employee subsequently acquires a family,such
nomination shall forthwith become invalid and the employee shall make with in such time as may
be prescribed, a fresh nomination in favour of one or more members of his family.
(5) A nomination may, subject to the provisions of sub-section (3) and (4), be modified by
an employee at any time, after giving to his emeployer awritten notice in such form and in such
manner as may be prescribe, of his intention to do so.
(6) If a nominee predeceases the employee, the interest of the nominee shall revert to
the employee who shall make a fresh nomination, in the prescribed form, in respect of such
interest.
(7) every nomination, fresh nomination or alteration, as the case may be,shall be sent by
the employee to his employer, who shall keep the same in his safe custody.
7. Determination of the amount of gratuity.- (1) A person who is eligible for payment
of gratuity under this Act or any person authorised, in writing to act o his

1. Section 5 renumbered as sub- section (1) therof by Act 26 of 1984, sec. 5.

2. Ins. by Act 26 of 1984, sec.5.
3. Ins by Act 22 of 1987, sec. 6 (w.e.f. 1-10-1987).
behalf shall send a written application to the employer, with in such time and in such form, as may
be prescriobed, for payment of such gratuity.
(2) As soon as getuity becomes payable, the employer shall, whether an apploication refered
to in sub-section (1) has been made or not, determine the amount of grtauity and give notice in
writing to the person to whom the gratuity is payable and also to the controlling authority
specifying the amount of gratuity so determined.
1
[(3) The employer shall arrange to pay the amount of gratuity with in thirty days from the
date it becomes payable to the person to whom the gratuity is payable.
(3A) If the amount of gratuity apyablr under sub-section (3) is not paid by the employer
with in the period specified in sub-section (3), the employer shall pay, from the date on which the
grtuity payable becomes to the date on which it is paid, simple interest at such rate, not exceeding
the rate notified by the Central Goverment From time toi time for repayment of lonmg-term
deposits, as that Goverment may, by notification specify:
Provided that no such interest shall be payable if the delay in the payment is due to fault of
the employee and employer has obtained permission in writing from the controlling authority for
the as delayed payment on this ground.]
(4)(a) If there is any dispute to the amount of gratuity payable to an employee under this Act
or as to the admissiblity of any claim of, or in relation to, an employee for payment of gratuity, or as
to the person entitled to receive the gratuity, the employer shall deposit with the controlling
authority such amount as he admits to be payable by him as gratuity.
2
[***]
3
[(b) Where there is a dispute with regard to any matter or matters specified in clause (a), the
employer or employee or any other person raising the dispute may make an application to the con-
trolling authority for deciding the dispute.]
4
[(c) The controlling authority shall, after due inquiry and after giving the parties to the
dispute a reasonable opportunity of being heard, determine the matter of matters in dispute and if,
as a result of such inquiry any amount is found to be payable to the employee, the controlling
authority shall direct the employer to pay such amount or, as the case may be, such amount as
reduced by the amount already deposited by the employer.]
5
[(d)] The controllig authority shall pay the amount deposited, including the excess amount,
if any, deposited by the employer, to the person entitled thereto.
5
[(e)] As soon as may be after a deposit is made under clause(a), the controlling authority
shall pay the amount of the deposit-
(i) to the amount where he is the employee; or
(ii) where the applicant is not the employee, to the 6[nominee or, as the case may be,
the guardian of such nominee or] heir of the employee if the controlling

1 . Subs by Act 22 of 1987, sec.7, for sub-section (3) (w.e.f. 1-10-1987).

2. The Explanation omitted by Act 25 of 1984, sec.4 (w.e.f. 1-7-1984).
3. Ins. by Act 25 of 1984, sec.4, (w.e.f. 1-7-1984).
4. Subs. by Act 25 of 1984, sec.4, for clause (c) as re-lettered by that section(w.e.f. 1-7-1984).
5. Clause (c) and (d) re-lettered as clauses (d) and (e) by Act 25 of 1984, sec. 4 (w.e.f.1-7-
1984). 6. Subs. by Act 25 of 1984, sec.4, “nominee or” (w.e.f. 1-7-1984).
authority is satisfied that there is no dispute as the right of the appliant to receive the amount of
gratuity.
(5) For the purpose of conducting an inquiry under sub-section (4), the controlling
authority shall have the same powers as are vested in a court, while trying a suit, under the Code
of Civil Procedure, 1908 (5 of 1908), in respect of the following matters, namely:-
(a) enforcing the attendance of any person or examining him on oath;
(b) requiring the discovery and production of documents;
(c) receiving evidence on affidavits;
(d) issuing commissions for the examination of witnesses.
(6) Any inquiry under this session shall be a judicial proceeding with the meaning of
sections 193 and 228, and for the purpose of section 196, of the indialn penal Code (45 of 1860).
(7) Any parson aggrieved by an order under sub-section (4) may, within sixty days from
the date of the receipt of the order, prefer an appeal to the appropriate Government in this bahalf:
Provided that the appropriate Goverment or the appellate authority, as teh case may be, may,
if it is satisfied that the appellant was prevented by sufficient cause fromperferring the appeal with in
the said period of sixty days, extend the said period by a further period of sixty days:
1
[Provide further no appeal by an employer shall be admitted unless at th etime of perferring
the appeal, the appealant either produces a certificate of the controlling authority to the effect thathe
appealant has deposited with him an amount equal to the amount of gratuity required to be deposited
under sub-section (4), or deposits with the appellate authority such amount.]
(8) The appropriate Government or the appealate authority, as the case mey be, may after
giving the parties to the appeal a reasonable opportunity of being heard, confirm, modify, or
reverse the decision of thecontrolling authority.
COMMENTS
(i) Amendment to section 7 is prospective in operation; Charan Singhv. Birla Textiles,
Air 1988 SC 2022.
(ii) While filling an appeal the appellant must deposit the amount of gratuity as ordered by
the Controlling Authority; Sahaari Gamme Vikas Samiti Ltd. v. Controlling Authority, 1993 LLR
448 (All).
(iii) An application for condonation of delay in filing application under section 7(7) is
not mandatory; Natraja Pillali v. Regional Jt. Labour Commissioner, (1993) 66 FLR 413 (Ker).
(iv) Under section 7(7) of the Act an appeal is maintainable only against the final order of
the Controlling Authority; Malbar Spg. & Wvg. Mills v. N.N.Nair, (1989) 74 FJR 1989 (Ker).
(v) The employee’s right to interest on delayed paymnet is stautory; Champaran Sugar
Co. Ltd. v. JOint Labour Commissioner and Appellate Authority, (1987) 54 FLR 60 (Pat) (FB).
1[7A. Inspectors.-(1) The appropriate Govenment may, by notification, appoint as many
Inspectors, as it deems as fit, for the purposes of this Act.

1. Ins. by Act 25 of 1984, sec.4, (w.e.f. 1-7-1984).

 (2) The appropriate Government may, by genral or special order, define the area towhich
the authority of an inspector so appointed shall extend and where two or more inspectors are
appointed for the same area, also provide, by such order, for the distribution of allocation of work
to be per- formed by them under this Act.
(3) Every inspector shall be deemed to be a public servant with in the menaing of section
21 of the Indian Penal Code (45 of 1860).
7B. Powers of Inspectors.- (1) Subject to any rules made by the appropriate Government in
this behalf, an Inspector may, for the purpose of ascertaining whether any of the provisions ofthis
Act or the conditions, if any, of any exemption granted thereunder, have been complied with,
exercise all or any of the following powers, namely:-
(a) require an employer to furnish such information as he may consider necessary:
(b) enter and inspect, at all reasonanble hours, with such assistance (if any), being persons
inthe service of the Government or local or any public authority, as he thinks fit, any permises of or
place in any factory, mine, oilfield, plantation, port, railway company, shop or other establishment to
which this Act, applies, for the purpose of examining any register, record or notice or other
documnet required to be kept or exhibited under this Act or the rules made therunder, or otherwise
kept or exhibited in relation to the employment of any person or the paymnet of gratuity to the
employees, and require the production thereof for inspection;
(c) examine with respect to any matter relevant to nay of the purposes aforesaid, the
employer or any person whom he finds in such premises or placeand who, he has reasonable cause
to believe, is an employee employed therein;
(d) make copies of, or take extract from, any register, record, notice or other document, as he
may consider relevant, and where he has reason to believe than any offence under this Act has been
committed by an employer search and seize with such assistance as he may think fit, such
register,record notice or other document as he may consider relevant inrespect of that offence;
(e) exercise such other powers as may be prescribed.
(2) Any person required to produce register, record, notice or other document, or to give
any information by an inspector under sub-section (1) shall be deemed to be legally bound to do so
with in the meaning of sections 175 and 176 of the Indian Panel Code (45 of 1860)
(3) The provisions of the Code of Criminal Procedure, 1973 (2 of 1974), shall so far as
may be, apply to any search or seizure under this section as they apply to any search or seizure
made under the authority of a warrant issued under section 94 of the Code.]
8. Recovery of gratuity.- If the amount of gratuity payable under this Act is not paid by the
employer, with in the prescribed time, to the person entitled thereto, the controlling authority shall,
on an application made to it in this behalf by the aggreived person issue a certificte that amount to
the Collector who recover the same, together with compound interest thereon 1[at such rate as the
centralGovernment may,

1. Subs. by Act 22 of 1987, sec.8, for “at the rate of 9 percent per annnum” (w.e.f. 1-10-1987).
by notification, specify], from the date of expiry of the prescribed time as arrears of land revenue
and play the same to the person entitled therto:
1[Provided that the controlling authority shall, before issuing a certificate under this section,
giove the employer a reasonable apportunity 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.]
COMMENTS
(i) If gratuity is not paid, it must be paid with compound interest at the rate prescribed under
section 8 of the Act, calculating till the date of payment; Nagar palika v. controlling Authority,
(1988) 57 FLR 425 (All).
(ii) Interest is admissible only if a certificate for recovery of dues as a public demand has
been issued; Charan Singh v. Jt. Labour Commissioner-cum- Appellate Authority, Air 1907 Pat 96.
9. Penalties.- (1) Whoever, for the purpose of avoiding any payment tobe made by himself
under this Act or of enabling any other person to avoid such payment, knowingly makes or causes
to be made any false statement or false representation shall be punishable with imprisionment for a
term which may extend to six months or with fine which may extend to 2[ten thousand rupees] or
with both.
(2) An employer who contravenes, or make default in complying with, any of the provisions
of this Act or any rule or order made therunder shall be punishable with imprisionment for a term
[which which shall not be less than three months but which may extend to one year, or with which
fine shall not be less than ten thousand rupees but which may extend to twenty thousand rupees, or
with both]:
Provided that where the offence relates to non-payment of any gratuity payable under this
Act, the employer shall be punisable with imprisionment for a term which shall not be less than 4[
six months but which may extend to two years] unless the court trying the offence, for reasons to be
recorded by it in writing, is of opinion that a lesser term of imprisionment or the imposition of a
fine would meet the ends of justice.
10. Exemption of employer from liablity in certain cases.- Where an employer is charged
with an offence punishable under this Act, he shall be entitled, upon complaint duly made by him
and on giving to the complainant not less than three day’s notice in writing of his intention to do so,
to have any other person whom he charges as the actual offender brought before the court at the
time appointed for hearing the charge; and if, after the commision of the offence has been proved,
the employer proves of the certification of the court-
(a) that he has used due deligence to enforce the execution of this Act, and
(b) that the said other person committed the offence in question without his
knowledge, consent or connivance,

1.Added by Act 22 of 1987, sec.8, (w.e.f. 1-10-1987).

2. Subs by Act 22 of 1987, sec.9, for “one thousand rupees” (w.e.f. 1-10-1987).
3. Subs by Act 22 of 1987, sec.9, for “certain words” (w.e.f. 1-10-1987).
4. Subs by Act 22 of 1987, sec.9, for “three months” (w.e.f. 1-10-1987).
 that other person shalll be convicted of the offence and shall be liable to the like punishment as if he
were the employer and the employer shall be discharged from any liablity under this Act in respect
of such offence:
Provided that in seeking to prove as afore said, the empoloyer may be examined on oath
and his evidence that if any witness whom he calls in his support shall be subject to cross
examination on behalf of the person he charges as the actual offender and by the prosecutor:
Provided further that, if the person chargesed as the actual offender by the employer can not
be brought before the court at teh time appointed before at the court time appointed for hearing the
charge, the court shall adjourn the h\earing from time to time for a period not exceeding three
months and if by the end of the said period the person charged as the actual offender cannot still be
brought before the court, the court shall proceed to hear the charge against the employer and shall,
if the offence be proved, convict the employer.
11. Cognizance of offence.- (1) No court shall take cognizance of any offence punishable
under this Act save on a complaint made by or under the authorityof the appropriate
Government:
Provided that where the amount of gratuitty has not been paid, or recovered, with insix
months from the expiry of the prescribed time, the appropriate Government shall authorise the
controlling authority to make a complaint against the employer, wher upon the controlling authority
shall with in fifteen days from the date of such authorisation, make such complaint to a magistrate
having jurisdiction to try the offence.
(2) No court inferior to thatr of a 1[Metropolitan Magistrateor a judicial Magistrate of the
first class] shall try any offence punishable under this Act.
12. Protection of action taken in good faith.- No suit or other legal proceeding shall lie
against the controlling authority or any other person in respect of any thing which is ingood
faith done or intended to be done under this Act or any rule or order made thereunder.
13. Protection of gratuity.- No gratuity payable under this Act 2[and no gratuity payable to
an employee employed in any establishment, factory, mine,oilfield, plantation, port, railway com-
pany or shop exempted under section 5] shall be liable to attachment in execution of any decre or
under of any civil, revenue or criminal court.
COMMENTS
(i) Gratuity cannot be attached; Chirsostm v. Federal Bank Ltd. (1993) 1 LLJ 422 (Ker).
(ii) This section gives total immunity to gratuity from attachmnet; Calcutta Dock Labour
v. Smt. Sandhya Mitra, (1985) Lab IC 714 (SC).
14. Act to override other enactments, etc. - The provision of this Act or any rule made
thereunder shall have effect notwithstanding anything inconsistent therewith contained in any
enactment other than this Act or in any instrumnet or contract having effect by virtue of any
enact- ment other than this Act.

1. Subs. by Act 34 of 1994, sec.4, for “ presidency Magistrate or a Magistrate of the first class” (w.e.f. 24-5-1994).
2.Ins.by Act 22 of 1984, sec.6 (w.e.f. 1-7-1984).
 COMMENTS
Pension scheme cannot defeat thet benefit of gratuity; C. Kuppuswami v. E.I.D. Parny
(India) Ltd., (1989) 1 LLN 85 (Mad).
15. Power to make rules. - (1) The appropriate Government may, by notification, make
rules for the purpose of carrying out the provisions of this Act.
(2) Every rule made by the Central Government under this Act shall be laid, as soon as may
be after it is made, before each House of Parliament while it is in session, for a total period of thirty
days which may be comprised in one sesion in two or more succesive sessions, and if, before the
expiry of the session the immediately following the session or the successive sessions aforesaid,
both Houses agree in making any modification in the rule or boath Houses agree that the rule
should not be made, the rule shall, thereafter, have effect only in such modified from or be or no
effect, as the case may be; so, however, that any such modification or annulment shall be without
prejudice to the validity of anything previously done u nder that rule.