Counting All Hands: Calcutta High Court Extends Payment of Gratuity Act Coverage to Co-operative Societies Employing Ten or More Workers (Including Daily-Rated Labour)

Introduction

In Midnapur District Service-cum-Marketing & Industrial Co-operative Union Ltd. v. State of West Bengal & Ors. (2025 CHC-AS 951), the Calcutta High Court was asked to determine whether a district-level co-operative society that formally maintained fewer than ten permanent employees could nonetheless fall under the Payment of Gratuity Act, 1972 (PGA) because it engaged additional daily-rated and casual workers. The society challenged concurrent findings of the Controlling and Appellate Authorities under the PGA, both of which had directed it to pay a gratuity of ₹2,13,911 (with interest) to one of its retired managers, Mr. Rejaul Hoque.

The central controversy was therefore two-fold:

Whether the society employed “ten or more persons” within the meaning of Section 1(3)(c) of the PGA, once daily-rated workers were taken into account; and
Whether the High Court should intervene in the quasi-judicial orders that had awarded gratuity.

Justice Shampa Dutt (Paul) dismissed the writ, holding that a registered co-operative society engages the PGA once the aggregate headcount—including permanent, temporary, and daily-rated workers—reaches ten at any point in the preceding twelve months. The decision clarifies evidentiary burdens, emphasises the benevolent nature of the PGA, and signals stricter judicial scrutiny of attempts by employers to circumvent social-security legislation through artificial manpower structures.

Summary of the Judgment

The Court upheld orders dated 10-03-2015 (Controlling Authority) and 05-12-2024 (Appellate Authority), both of which had directed the petitioner-society to pay statutory gratuity to the respondent-employee.
Evidence from audit reports, attendance registers, and the society’s own “Gratuity Fund” demonstrated that at least ten persons—including daily-rated workers—were employed during relevant periods.
The petitioner’s reliance on Independent Schools’ Federation of India v. Union of India (2022) failed because that case dealt with private unaided schools, not co-operative societies; moreover, the Supreme Court had itself emphasised Section 1(3)(c).
The Court reiterated that the PGA is a beneficial, social-welfare statute; doubts must be resolved in favour of employees.
Consequently, WPA 2763 of 2025 was dismissed and interim relief vacated.

Analysis

Precedents Cited

Independent Schools’ Federation of India (Regd.) v. Union of India & Anr., Civil Appeal 8162/2012 (SC, 2022): Discussed the extension of the PGA to local-body schools via Section 1(3)(c). Here, the High Court distinguished the case on facts but adopted the Supreme Court’s broad reading of Section 1(3)(c) concerning “ten or more employees”.
Lakshmi Vishnu Textile Mills v. P.S. Mavlankar, (1979) I LLJ 443 (Bom HC): Held that daily-rated workmen are as much entitled to gratuity as weekly or monthly-rated workmen. The Appellate Authority relied heavily on this decision; the High Court implicitly approved its reasoning.

Legal Reasoning

Statutory Trigger—Section 1(3)(c): The Court confirmed that the only statutory pre-condition is employment of “ten or more persons” on any single day in the preceding twelve months. The phrase “persons” is unqualified; hence permanent, temporary, contractual, and daily-rated workers must all be counted. Once the threshold is crossed, the establishment remains covered even if headcount later falls below ten (the “once covered, always covered” doctrine).
Evidentiary Burden: Because the employer is the custodian of payroll and attendance records, the burden to disprove statutory coverage rests on it once a prima facie case is made. Failure to produce complete records leads to an adverse inference, particularly where the employer has previously maintained a gratuity fund and paid gratuity to other employees.
Beneficial Interpretation: Citing the social-welfare character of the PGA, the Court applied the principle that remedial legislation should receive a liberal construction, and technical objections should not defeat substantive employee rights.
Nexus with Natural Justice: Denying statutory dues after 34 years of service was characterised as an “unfair labour practice” and contrary to natural justice, reinforcing the moral dimension of the ruling.

Impact of the Decision

Compliance Pressure on Small & Medium Co-operatives: Many co-operative societies in West Bengal and elsewhere operate with skeletal permanent staff while hiring daily-rated or piece-rate workers. The judgment forecloses arguments that such workers can be excluded when computing headcount, compelling compliance with gratuity provisions.
Record-Keeping Standards: Employers’ inability to produce complete records now risks an adverse inference that their workforce exceeds the statutory threshold. The judgment may spur more diligent record maintenance, including digital attendance and wage registers.
Judicial Guidance on Section 1(3)(c): The decision provides a roadmap for lower courts and controlling authorities when assessing coverage—look to actual headcount across categories, historical audit reports, and even creation of internal gratuity funds.
Potential Ripple in Other Statutes: Though confined to the PGA, the broad definition of “employee” could influence interpretation of similar threshold-based labour laws (e.g., Employees’ Provident Funds Act, ESI Act).

Complex Concepts Simplified

Payment of Gratuity Act, 1972: A central law requiring employers to pay a lumpsum gratuity to employees who complete at least five years’ continuous service, triggered by retirement, resignation, death, or disablement. Coverage depends on employee strength.
Controlling vs. Appellate Authority: Under the PGA, the Controlling Authority (usually the Assistant Labour Commissioner) decides disputes about gratuity payment. Appeals lie to the Appellate Authority (often the Deputy/Regional Labour Commissioner).
Daily-Rated Worker: A person paid per day of work rather than a monthly salary. The Court confirmed their equality with permanent staff for gratuity purposes.
Beneficial (Social-Welfare) Legislation: Laws designed to confer benefits on a vulnerable class. Courts typically construe them liberally in favour of beneficiaries.
Adverse Inference: When a party withholds evidence it should possess, the court may presume that the evidence would have gone against that party.

Conclusion

The Calcutta High Court’s decision in Midnapur District Service-cum-Marketing & Industrial Co-operative Union Ltd. lays down a clear, employee-centred rule: If the total workforce—permanent, temporary, or daily-rated—ever reaches ten, the Payment of Gratuity Act applies, and the employer cannot later escape liability by showing a reduced permanent cadre.

By relying on the employer’s own audit reports, gratuity fund, and prior gratuity payments, the Court emphasised that formal designations or contractual labels will not defeat statutory welfare entitlements. Going forward, co-operatives and similarly structured organisations must count every hand they engage, maintain transparent records, and budget for statutory gratuity—or face judicial correction.