Delayed Payment Of Gratuity, Employer Liable To Pay 10% Interest As Per Central Government Notification : Jharkhand HC

Background Facts

The respondent employee was working for the Tata Steel Limited (Management). The management failed to pay the gratuity to employee in the specified time period, therefore the employee claimed interest on the gratuity amount.

Section 7 (3-A) of the Payment of Gratuity Act, 1972 provides for Determination of the amount of gratuity. If the amount of gratuity payable under sub-section (3) is not paid by the employer within the period specified, 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.

The central government issued Notification dated 01.10.1987 S.O. 873 (E) which stated that in exercise of the powers conferred by sub-section (3A) of Section 7 of the Payment of Gratuity Act, 1972, the Central Government specifies the rate of simple interest as 10% per annum, payable for the time being by the employer to his employees in cases where the gratuity was not paid within the specified period.

The Deputy Labour Commissioner-cum- Controlling Authority, Kolhan Division, Jamshedpur passed the order dated 19.08.2021, whereby the management was directed to make the payment of simple interest @ 10% per annum on the amount of gratuity (Rs. 10,67,308.00) within 30 days. Aggrieved by the same, the management challenged it.

The Labour Commissioner cum Appellate Authority passed the order dated 14.03.2023, whereby it upheld the order of Controlling Authority. Aggrieved by the same, the management filed the writ petition.

It was submitted by the management that the direction to pay interest at the rate of 10% on the due amount of gratuity was contrary to the provision of Section 7 (3-A) of Act of 1972, as the maximum interest can be awarded at the rate of 10%. It was submitted that the “maximum” necessarily means that any amount less than the same may be required to be paid.

It was further submitted that the notification cannot override the provision of the Act which prescribes that the maximum rate is 10%, meaning thereby any amount less than 10% can also be granted. It was submitted that the maximum rate of interest should be reduced to 6% or 7%.

On the other hand it was submitted by the respondent that the notification dated 01.10.1987 clearly quantifies the rate of interest at 10%, which is also provided under Section 7 (3-A), with a clear mandate that the Government has to issue notification.

Findings of the Court

It was observed by the court that Section 7 (3-A) of the Act of 1972 provides the parameter for fixing the rate of interest but the section by itself does not fix any rate of interest. However, the rate of interest is to be notified by the Central Government in terms of Section 7(3-A) of the Act of 1972 which has been notified vide notification dated 01.10.1987 @ 10%. Further that section 7(3-A) does not provides for automatic change of rate of interest.

The case of S. Vasanthan Vs. The Managing Director and Anr. was relied upon by the court wherein the Madras High Court held that the Section 7 (3-A) of the Act of 1972 provides the restriction on the upper limit for the rate of interest. While the notification issued by the central government fixing the rate of interest more than that provided in Section 7 (3-A), runs contrary to the statute, therefore the notification cannot be applied.

But the court did not take the same view as of Madras High Court and observed that the rate of interest payable by Central Government on long term deposit may vary from time to time and the Central Government issued appropriate notification dated 01.10.1987 in terms of Section 7 (3-A) of the Act of 1972 modifying the applicable rate of interest.

The case of Laxman Singh Bhadauriya Vs. Controlling Authority and Others was also relied upon by the court wherein the Allahabad High Court held that the order of the statutory authority in respect of payment of 4% interest was contrary and directed payment of interest @ 10% as per the existing notification dated 01.10.1987 issued by the Central Government.

The case of Narahari Vs. The State of Andhra Pradesh was relied upon by the court wherein the Andhra Pradesh High Court referred to the notification issued by the Central Government fixing the rate of interest @ 10% but the court modified the rate of interest from 9% to 12% per annum on all amounts due which included all retiral benefits, considering the peculiar circumstances of the case.

It was found by the court that there is no conflict in the provision of Section 7 (3-A) of the Act of 1972 and the Notification dated 01.10.1987, as Section 7 (3-A) provided the basis on which the notification was issued.

It was held by the court that the appellate authority while sustaining the rate of interest @ 10% granted by the Controlling Authority has rightly referred to the Notification dated 01.10.1987, which is a statutory notification issued under Section 7 (3-A) of the Act of 1972.

Therefore the order passed by the appellate authority was not interfered by the court. With the aforesaid observations, the writ petition was dismissed.

Case No. : W.P.(L) No. 2120 of 2023

Counsel for the Petitioner : G.M. Mishra, Advocate

Counsel for the Respondents : Rohit Ranjan Sinha, Advocate; Atul Vivek, Advocate; Ravi Prakash Mishra, AC to AAG II