JUDGMENT
S.S. Sandhawalia, C.J.
1. Whether the Payment of Gratuity Act, 1972 envisages the grant of interest on delayed payments of gratuity to an employee is the core question in this reference to the Full Bench. If so, whether such interest can be granted in the absence of an express claim therefor in the application of the employee before the Controller? Equally at issue is the correctness of the contrary view in C.W.J.C. No. 14 of 1985 (Patna Electricity Undertaking v. State of Bihar) decided on the 25th of July, 1985.
2. The facts He in a narrow compass and are not in serious dispute. The petitioner M/s. Champaran Sugar Company Limited are engaged in the business of manufacturing sugar and own a factory therefor situated at Barachakia in the district of East Champaran. Respondent No. 3 Sri Kamlakant Gupta was admittedly their employee of a long standing, who superannuated on the 1st of July, 1976 and his last drawn wage was Rs. 605.29 per month. It is unnecessary to delve into the applicability of gratuity laws on the sugar industry and it suffices that the Payment of Gratuity Act, 1972 (hereinafter called as the Act) became applicable and binding on all sugar industries of Bihar including the petitioner-company in the year 1974. On the petitioner’s own showing, the respondent-employee is alleged to have failed in delivering vacant possession of the residential quarters allocated to him and consequently the requisite clearance certificate was not issued by the authorities and the amount of gratuity payable to him was not paid immediately. The respondent-employee by his letter dated the 2nd of May, 1980, addressed to the petitioner-company, reiterated his claim for gratuity and the same having not been paid or tendered, he preferred an application before the Controlling Authority on the 5th of May, 1980, under Section 7 of the Act and the Rules framed thereunder. The Controlling Authority entertained the said application despite some delay on the ground that the gratuity amount had been illegally withheld by the company. By the order dated 31st October, 1981, the Controlling Authority held that the respondent-workman was entitled to receive a sum of Rs. 13,980/- as gratuity for his forty years of completed service. Necessary directions under Rule 17 of the Rules were also issued to the management for payment of the aforesaid amount within 30 days. The Controlling Authority did not in express terms advert to the interest payable for the delayed payment of gratuity and it is the petitioner’s stand that the respondent-workman had not in terms claimed any interest on the amount of gratuity admittedly due to him. The petitioner-company thereafter filed an appeal before the Joint Labour Commissioner (the Appellate Authority under the Act). By its order (Annexure 2), the Appellate Authority found no merit in the stand of the petitioner and dismissing the same directed the payment of the gratuity amount plus usual interest due thereon. Aggrieved thereby, the present writ petition has been filed primarily and indeed, solely directed against the grant of interest on the amount of gratuity due.
3. At the very threshold stage of admission, reliance was primarily placed on behalf of the petitioner on the Patna Electricity Undertaking v. State of Bihar (Supra) for asserting that no interest on gratuity was payable. The correctness of the judgment was forthwith assailed on behalf of the respondents and in the alternative reliance was placed on Section 4 of the Interest Act, 1968, for the direction to pay interest on gratuity. Noticing the significance of the issues involved, the case was directed to be heard by a Full Bench.
4. Before one gets enmeshed in details, it is apt and indeed is necessary to view the issues in a larger vista. One has to bear in mind the fact that of late a sea change has come in the law with regard to the approach to pensionary and other retiral benefits. Times were that pensionary benefits were viewed not as a matter of legal right but merely a bounty in the discretion of the State or other employers. Such a view was given go-by in the Full Bench judgment in AIR 1967 Punj 279 (K.R. Erry v. State of Punjab) which was later affirmed and eulogised by their Lordships in AIR 1973 SC 834: (1973 Lab IC 440) (State of Punjab v. K. R. Erry and Spbhag Rai Mehta) to hold that pensionary benefits are no more a bounty but a well earned legal right to the employee. To my mind, the wheel has turned full cycle with the recent reiteration of the rules by their Lordships in AIR 1985 SC 356 : (1985 Lab IC 664), (State of Kerala v. M. Padmanabhan Nair) in the terms following :–
“Pension and gratuity are no longer any bounty to be distributed by the Govt. to its employees on their retirement but have become under the decisions of this Court, valuable rights and property in their hands and any culpable delay in settlement and disbursement thereof must be visited with the penalty of payment of interest at the current market rate till actual payment.”
With regard to the quantum of interest due in such circumstances, their Lordships observed as under: —
“4. Unfortunately such claim for interest that was allowed in respondent’s favour by the District Court and confirmed by the High Court was at the rate of 6 per cent per annum though interest at 12 per cent had been claimed by the respondent in his suit. However, since the respondent acquiesced in his claim being decreed at 6% by not preferring any cross-objections in the High Court it would not be proper for us to enhance the rate to 12% per annum, which we were otherwise inclined to grant.”
5. To my mind, it is in the light of the aforesaid authoritative enunciation and what is now settled law in this context that the issue in the present case has to be viewed. What has been said in the context of pensionary benefits generally applied to my mind doubly in the context of gratuity expressly provided for by the Act.
6. Learned counsel for the petitioner first
took up a somewhat tall stand that the Act,
does not envisage the payment of interest on
gratuity at all in terms. In the alternative, it
was contended that even if Section 8 of the Act
was to be so construed then interest would
only be paid in coercive recovery by the
issuance of a certificate of the Controlling
Authority for what was alleged to be the
penal rate of Compound interest of 9 per cent
thereof and in no other case. Equally,
somewhat a technical stand then was that if
the amount of interest has not been claimed
by the employee in his application before the
Controller, he cannot grant the same nor
could the appellate authority do so. Inevitably,
the sheetanchor of the petitioner’s case was
the case of Patna Electricity Undertaking v.
State of Bihar (Supra).
7. At the very outset, it calls for notice that barring the brief observation in the aforesaid case, the issues before the Full Bench are as yet res integra. Learned counsel for the parties stated that it would appear that despite the passage of nearly fifteen years from the promulgation of the Act, no detailed judgment specifically covering the issue on either side has been rendered in this view of the matter, the question deserves somewhat detailed and in-depth examination.
8. Inevitably, the threshold issue herein is of the question of the true approach to the interpretative exercise with regard to the provisions of the Act. There is no gainsaying of the fact that this statute is a beneficent piece of legislation expressly drafted in the interest of the employees for the payment of statutory gratuity to them. As its preamble indicates, it is sought to be made applicable to all employees engaged in factories, mines oilfields, plantations, ports, railway companies, shops or other establishments. It also provides for all matters connected therewith or incidental thereto including the expeditious payment of gratuity when it becomes payable. The larger purpose and scheme of the Act is, therefore, not in any doubt and it would be somewhat wasteful to labour the obvious. It would thus suffice to construe the provisions of the Act and the rules framed thereunder against the background aforesaid.
9. Before proceeding further, one may recall the principle authoritatively enunciated in AIR 1961 SC 751 (State of U.P. v. Babu Ram Upadhya) that statutory rules validly framed become part and parcel of the Act itself and virtually having the same force of law. Section 15 of the Act empowers the appropriate Government, by notification, to make rules for the purpose of carrying out the provisions of the Act. In compliance therewith the Central Government have promulgated the Payment of Gratuity (Central) Rules, 1972. Our State has similarly promulgated the Payment of Gratuity (Bihar) Rules, 1972. Without being mathematically precise and perhaps, barring marginal difference, if any, it may be said with confidence that by and large, the Payment of Gratuity (Central) Rules, 1972, are virtually in pan materia with the Bihar Rules. The validity of these rules has not been even remotely challenged and they are thus an integral part of the Act.
10. As one scans the Act, what first necessarily catches the eye is the fact of the statutory liability of the employer to pay gratuity and a corresponding right of the employee to receive it whenever.it becomes payable under Section 4 and the relevant part thereof is in the terms following : —
“4. Payment of gratuity.– (1) Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years,–
(a) on his superannuation, or
(b) on his retirement or resignation, or
(c) on his death or disablement due to accident or disease.”
A plain reading of the aforesaid provision can hardly leave any doubt that the Act now confers a statutory right on the employee. If the requisite conditions are satisfied, the same becomes mandatorily payable to him. Not only that, the provisions aforesaid in terms specify that this becomes payable on the very date of his superannuation or retirement or resignation or death and disablement as the case may be. Both the right to gratuity and the date on which it becomes payable are thus with meticulous details taken care of by the aforesaid provisions and others ancillary thereto.
11. The stage is now set for noticing the crucial provisions of Section 8, which, to my mind, clearly envisage both the grant of interest on delayed payment of gratuity as also the rate on which the same is to be calculated. This is in the following terms : —
“8. Recovery of gratuity.– If the amount of gratuity payable under this Act is not paid by the employer within the prescribed time, to the person entitled thereto, the controlling authority shall, on an application made to it in this behalf by the aggrieved person, issue a certificate for that amount to the Collector, who shall recover the same, together with compound interest thereon at the rate of nine per cent, per annum, from the date of expiry of the prescribed time, as arrears of land revenue and pay the same to the person entitled thereto.”
It is somewhat manifest from the afore quoted provisions of Sections 4 and 8 of the Act that it envisages the payment of gratuity either when it becomes payable or within the time prescribed. The very opening part of Section 8 would leave no manner of doubt that the mandatory/statutory duty to pay gratuity is in terms laid down on the employer. It is not made contingent on an application or a claim by the employee. Of course, a procedure is prescribed if the employer defaults in his duty to pay. What, however, deserves reiteration is that the Act in terms repeatedly lays the burden on the employer of tendering or paying the gratuity whenever it becomes payable to the employee within the time prescribed. Section 2(o) lays down that “Prescribed” means prescribed by rules made under the Act and reference hereinafter would follow to the different situations prescribing such time.
12. Now a superficial reading of the rule therein on first impression, tended to indicate a hiatus or lacuna in so far as they did not inflexibly prescribe the time within which the gratuity is to be tendered or actually paid. However, a more meticulous reading of the different rules would clearly indicate that different time is prescribed by relevance to different termini from the date when gratuity would actually become payable. It has thus probably to be determined in each individual case depending on whether the employer in the very beginning tendered the same or deposited it or by virtue of a dispute or issuance of notices it has to be delayed or the terminus may have relevance to the date of the order of the Controlling Authority or even of the appellate authority. It would appear that the rules tend to cover different eventualities. It may not be practically possible to have a fixed base of prescribed time in varying eventualities. It is not necessary here to finally pronounce on the same. But it would appear that if the case does not come within the expressly prescribed period of time, then probably there would be little choice but to fall back on the date when gratuity becomes payable as equally the prescribed date for its payment.
13. Having thus laid the duty at the door of the employer to pay gratuity within the prescribed time, Section 8 also provides the
sanction for such payment and the methodology for its recovery with interest for the delay in payment caused by the default of the employer. The Act is itself specific that the Controlling Authority in such cases would recover the gratuity with compound interest at the rate of 9 per cent per annum by the coercive process of the issuance of a certificate recoverable as arrears of land revenue by the Collector. Not only that, the terminus for calculating the same is fixed at the date of the expiry of the prescribed time.
14. It would seem somewhat plain from the above that the payment of interest is the mandate of the law itself and not dependent on an express claim by the employee therefor. Herein the employee’s right to interest accrues from the failure of the employer to perform his statutory duty to tender and pay gratuity and not from any formal demand therefor by the employee. Similarly, the liability to pay interest does not stem from the certificate of the Controlling Authority but from the default in the performance of his duty by the employer. The Certificate proceedings are a procedural mode of recovery and not the source of a substantive right to interest. Herein, a patent misconception may perhaps be cleared.
15. Learned counsel for the petitioner had attempted to contend that under Section 8, the payment of interest was a penal provision and arises only when a certificate is issued. Such a stand, to my mind, is now untenable both on principle and precedent. One does not see anything penal in the grant of interest for a delayed payment of moneys legally due and made mandatorily payable by the employer. Nor can one see anything oppressive in the prescription of 9 per cent compound interest. Indeed, reference should be made to M. Padmanabhan Nair (1985 Lab IC 664) (Supra) wherein even in the absence of any statutory sanction, their Lordships were inclined to take the view that 12 per cent interest would be a just rate. In the present day world, it is nothing but the commercial equivalent of moneys wrongly withheld. Whilst in the absence of such a payment the employer has the benefit and advantage of the use of the money which was rightfully due to and should have been in the pocket of the employee, the former could well earn interest on the said amount, whilst correspondingly the latter is deprived of the same, if it were in his hand. The prescription of interest is thus not to be viewed through coloured glasses as a penal provision but in the context of a beneficial statute it must be looked upon as a just compensation, for money wrongfully withheld. This view is now buttressed by way of analogy by the recent Full Bench in 1986 Pat LJR 807 : (1986 Tax LR 1511) (Commr. of Income-tax, Bihar, Patna v. Prayaglal Agarwala and Co., Jharia). Therein the statutory payment of interest for delayed payment of tax due was rightly construed as not penal in nature but compensatory in essence. Sections in the context of the employer and employee relation is thus no more than a similar compensatory provision. In the case, aforesaid, it was observed as under : —
“8………… Indeed, the fallacy herein stems from a loose terminology labelling the same as penal interest. In fact and in law, it is not so. The penal provisions in the context of a delayed return are expressly laid out in Section 271(1)(a). The liability to pay the statutory interest under Section 139, therefore, is nothing more or less than a commercial compensation for the delayed payment of tax which would inevitably result from delayed filing of the return. Herein this interest is a simple quid pro quo for the delayed tender of tax in the treasury and, in ordinary commercial terms, to pay interest for the money so withheld. This appears to be well settled on principle……”
16. It now remains to advert to the sheet-anchor of the petitioner’s stand in Patna Electricity Undertaking v. State of Bihar (Supra). A plain reading of the said short order at the admission stage itself would indicate that counsel were somewhat remiss in not adequately canvassing and debating the matter before the Division Bench. Equally, it shows the inherent pitfalls in deciding significant legal issues at the threshold stage. Indeed, Mr. Gupta, learned counsel for the petitioner, in the present case, who in a transposed role was the counsel for the workman in Patna Electricity Undertaking v. State of Bihar (Supra), very candidly conceded that therein he missed citing the derailed relevant provisions of the Act and the Rules.
Consequently, the learned Judges noticed that the learned counsel for the respondent-workman could not point out any provision under the Act under which the appellate authority could have awarded any such interest. It would thus appear that the judgment has been virtually rendered per incuriam without noticing Section 8 in particular and Section 4 and the numerous other provisions and statutory rules to which reference has been made now. Neither principle nor authority seems to have been referred to in the order and it appears that virtually ex concessionis direction to pay interest was quashed and writ petition was allowed to that extent. With deepest respect, this judgment does not lay down the law correctly and is hereby overruled.
17. To conclude on this aspect, the answer to the very first question posed at the outset is rendered in the affirmative and it is held that the Payment of Gratuity Act, 1972, itself envisages grant of interest on delayed payments of gratuity to an employee and equally the rate and mode for the recovery thereof,
18. It remains now to consider somewhat briefly what I have already labelled as the technical stand that no interest on delayed payments of gratuity can be granted in the absence of an express claim therefor in the application of the employee before the Controller. What has been discussed above under the heading of the earlier question in a broad manner is applicable to this aspect as well because the twin issue does overlap. However, what would call for specific notice in this context is the provision of Section 7 providing both for the determination of the amount of gratuity and the payment thereof by a statutory mandate itself. The relevant parts thereof deserve notice in extenso : —
“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 on his behalf shall send a written application, to the employer, within such time and in such form, as may be prescribed, for payment of such gratuity.
(2) As soon as gratuity becomes payable, the employer shall, whether an application referred to in Sub-section (1) has been made or not, determine the amount of gratuity am 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.
(3) The employer shall arrange to pay the amount of gratuity within such time as may he prescribed, to the person to whom the gratuity is payable.
(4)(a) If there is any dispute as to the amount of gratuity payable to an employee under this Ac or as to the admissibility of any claim, of, or in relation to, an employee for payment of gratuity, or as to the person entitled to receive the gratujty, the employer shall deposit with the controlling authority such amount as he admits to be payable by him as gratuity.”
Herein, particular notice deserves to be taken of aforementioned Sub-sections (2), (3) and (4)(a). These leave no manner of doubt that the statute places the basic duty of determining the amount of gratuity and tendering the same to the employee squarely on the employer dehors any claim or application by him. A combined reading of these provisions will indicate that herein the employer is under a mandatory obligation to determine and pay the. gratuity and it is. not dependent or conditioned on any express claim or application by the employee for such gratuity and consequential interest. This seems to be manifest from Sub-section (2) which in terms states whether an application has been made or not the employer is bound to determine the amount of gratuity and give notice in writing to the employee and equally to the Controlling Authority specifying the amount so determined. Yet again, Sub-section (3) lays a duty on the employer to pay (he amount of gratuity within the prescribed limit to the employee irrespective of any application or claim by him. The intention of the legislature is further made explicit by Sub-section (4)(a) mandating that in the event of any dispute as to the amount or as to the person entitled to receive the gratuity, the employer is placed under a liability to deposit the amount which he deems to be payable with the Controlling Authority. This duty is again irrespective of any claim or application by the employees. It is unnecessary to advert to the remaining provisions of Section 7 which pertain to the procedure for the Controlling Authority when deciding the applications made to it under Clause (b) of Sub-section (i) of Section 7. Thus it seems more than manifest that wholly irrespective of the fact whether an application is made by the employee to the employer or to the Controlling Authority, the employer is duty bound under the mandate of the law to determine the amount of gratuity due, to arrange to pay the same to the employee and in the event of a dispute, to deposit the admitted amount with the Controlling Authority. Therefore, if the basic claim of gratuity accrues irrespective of any application or express claim on behalf of the employee, it is somewhat elementary that the consequential claim of interest for delayed payment would equally accrue without any express claim therefor. To reiterate at the risk of repetition, it is the Act itself which mandates the payment of gratuity and the consequential payment of interest in the event of its failure within the prescribed time. These statutory rights stem from the Statute and not from any application or claim therefor.
19. To sum up on this aspect, answer to the second question is rendered in the affirmative and it is held that the right to interest on delayed payment of gratuity is statutory and the same can be granted in the absence of an express claim therefor in the application of the employee before the Controller.
20. Alt the three significant legal issues having been thus decided against the petitioner, there is patently no merit in this writ application solely challenging the statutory grant of interest for grossly delayed payments of gratuity to the respondent-employee. The writ application is consequently dismissed. Parties are left to bear their own costs.
S. Ali Ahmad, J.
21. I agree.
M.P. Verma, J.
22. I agree.