Separate Calculation Of Gratuity Amount For Parent Service And Deputation Service Impermissible: Kerala High Court

In the Writ Petition, the question to be decided was how much amount the company should contribute towards the gratuity of its deputed employee. S. Kamaladharan retired from Kerala Shipping and Inland Navigation Corporation on 30/11/2014. He worked for a period of 7 years and 10 months in Kerala Tourism Development Corporation (KTDC) on deputation.

After his retirement, he was paid only an amount of Rs. 1,45,338 towards gratuity when he claimed to be eligible for more than Rs. 3.5 Lakhs. The parent company could not pay the gratuity in full as proportionate sums were not received from KTDC and Kerala State Beverage Corporation (Bevco) where the petitioner worked on deputation.

The argument of KTDC was that the gratuity payable by them should be calculated according to the last salary drawn from them and not the last paid salary before his retirement. The petitioner worked there only till 2003 drawing a monthly salary of Rs. 5,309 while his last drawn salary before retirement was Rs. 27,991. KTDC sanctioned only an amount of Rs. 24,503 while the parent company demanded an amount of Rs. 1,29,189.

The Single Bench of Justice A. M. Abdul Hakhim found this argument untenable. The Court noted that Section 4(2) of the Payment of Gratuity Act says that employee shall pay gratuity based on the wages last drawn by the employee. Therefore, monthly salary drawn immediately before termination of employment is the relevant amount. This is irrespective of his deputation service, court said.

"There is no provision to calculate separate gratuity amounts for parent employer service and deputation employer service. Calculation of gratuity for deputation service separately is entirely impermissible in law."

Court added that if the employer where the employee worked on deputation pays gratuity only based on the last salary drawn by the employee from that institution, there would be deficit in total gratuity amount payable to the employee. It is not the liability of the parent employer to make good the deficient amount, it held.

“Once total gratuity payable to the employee is calculated by the Parent employer based on the monthly salary last drawn by the employee immediately preceding his termination, the Parent employer has every right to seek contributions from the employer with whom the employer had worked for deputation, for the period of deputation. The employer which employed an employee on deputation cannot contend that the gratuity for the period of deputation is to be calculated based on the salary last drawn by the employee from such employer.”

The Court ordered KTDC to pay the gratuity amount with 8% per annum interest considering the delay in making the payment.

KTDC had also not paid the employer the Value of Earned Leave. They said that this was because the parent company did not give necessary information to KTDC and therefore they could not remit the Leave Encashment to parent company. The parent company said that KTDC did not give Last Pay Certificate at the time of repartriation. Hence the Value of Earned Leave was calculated based on the last drawn salary of the employee assuming he had not availed or surrendered any earned leave.

The Court noted that there is documents to show that the parent company asked KTDC to pay the amount calculated by them but KTDC could not show proof of any response to that order. The Court ordered the KTDC to give the Last Pay Certificate to the parent company. The parent company can calculate Value of Earned Leave and KTDC is liable to pay that with 6% per annum interest.

Counsel for Petitioner: Advocates P. Sreekumar, K. Arun Venugopal, Ashwin Kumar M. J., Helen P.A.

Counsel for Respondents: Advocates Vipin P. Varghese, Santhosh Mathew, P. A. Ahmed, Naveen T., Adarsh Mathew, Merline Methew, Celine John, Mehnaz P. Mohammed, Anirudh G. Kamath

Citation: 2024 LiveLaw (Ker) 340

Case Title: S. Kamaladharan v Kerala Shipping and Inland Corporation Ltd. And Others

Case No.: WP(C) 35362/ 2019