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Charan Singh v. Birla Textiles And Another
Factual and Procedural Background
The appellant joined service under the first respondent in April 1944 and resigned with effect from May 24, 1983. Upon resignation, the employer failed to determine and notify the amount of gratuity as mandated by Section 7(2) of the Payment of Gratuity Act, 1972 (“the Act”). On June 7, 1983 the appellant submitted a formal application (Form I) seeking payment of gratuity. Receiving no response, he approached the statutory Controlling Authority, requesting determination of the gratuity amount and the award of interest.
The employer contested liability for both gratuity and interest. On December 3, 1984, the Controlling Authority quantified the gratuity at Rs 16,380 and directed the employer to pay it with compound interest at 9 % per annum. The employer appealed. The Appellate Authority upheld the gratuity calculation but set aside the direction to pay interest. The workman then filed the present appeal to the Supreme Court by special leave, limited to the question of interest.
Legal Issues Presented
- Whether a workman, whose gratuity was determined by the Controlling Authority before the 1987 amendment to the Act, is entitled to interest on that gratuity when recovery proceedings under Section 8 have not been initiated.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The Court examined Sections 7 and 8 of the Act as they existed in 1983, when the cause of action arose. It noted:
- Section 8 applies only after an aggrieved employee approaches the Controlling Authority for a recovery certificate to the Collector. Because the appellant never initiated recovery proceedings before the Collector, the statutory trigger for interest under Section 8 had not arisen.
- At the relevant time, Section 7 contained no provision for interest between determination by the Controlling Authority and actual payment. The lacuna was subsequently addressed by the insertion of Section 7(3-A) via Act 22 of 1987, but that amendment operates prospectively and cannot aid the appellant.
- Reliance on the Interest Act, 1978 and Section 34 of the Code of Civil Procedure was rejected. The Court held that: (a) no prior notice demanding interest had been served, a prerequisite under the Interest Act; and (b) the Controlling Authority is not a “court,” preventing recourse to Section 34 CPC.
Accordingly, the Court concluded that the statutory framework in force when the appellant resigned did not confer any right to interest in the circumstances of this case.
Holding and Implications
Appeal Dismissed. The workman is not entitled to interest on the gratuity amount of Rs 16,380, and there is no order as to costs.
Implications: The judgment clarifies that, prior to the 1987 amendment, interest on gratuity under the Payment of Gratuity Act could be awarded only in recovery proceedings under Section 8. It reinforces the prospective nature of Section 7(3-A) and leaves intact the pre-1987 legal position without creating new precedent on broader issues.
Ranganath Misra, J.— The short question in this appeal by special leave is whether the appellant-workman was entitled to interest on the gratuity due to him under the provisions of the Payment of Gratuity Act, 1972 (39 of 1972).
2. Appellant joined service under Respondent 1 in April 1944 and was relieved from service on his resignation with effect from May 24, 1983. The employer did not determine the amount of gratuity payable to the appellant as required under Section 7(2) of the Act. On June 7, 1983, the appellant furnished an application in Form I for payment of gratuity but no action was taken by the employer; then appellant approached the statutory controlling authority for determination of the amount of gratuity and requested that on the sum due interest may be paid. The employer contested the claim both in regard to gratuity as also interest. On December 3, 1984, the controlling authority determined the amount of gratuity at Rs 16,380 and directed Respondent 1 to pay the same along with compound interest of 9 per cent. Thereupon Respondent 1 challenged the order before the appellate authority. The appellate authority affirmed the determination of gratuity but set aside the order for payment of interest.
3. We have heard learned counsel for both parties in regard to payability of interest. Relevant portions of Sections 7 and 8 of the Act, as they stood in 1983, when the cause of action arose, may now be extracted:
“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 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.
(3) The employer shall arrange to pay the amount of gratuity, within such time as may be 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 Act 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 gratuity, the employer shall deposit with the controlling authority such amount as he admits to be payable by him as gratuity.
Explanation.—Where there is a dispute with regard to any matter specified in this clause the employee may make an application to the controlling authority for taking such action as is specified in clause (b).
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.”
The provisions of Section 7 have been amended twice, first by Act 25 of 1984 with effect from July 1, 1984 and again by Act 22 of 1987. The 1987 Amendment has substituted sub-section (3) and added sub-section (3-A) in Section 7 to the following effect:
“(3) The employer shall arrange to pay the amount of gratuity within thirty days from the date it becomes payable to the person to whom the gratuity is payable.
(3-A) If the amount of gratuity payable under sub-section (3) is not paid by the employer within the period specified in sub-section (3), 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 controlling authority had directed interest as provided in Section 8 to be paid which the appellate authority had vacated. From the facts of the case, it is clear that the stage for action under Section 8 had not been reached inasmuch as the appellant had not applied for recovery of gratuity to the Collector. It is only when the Collector issues a certificate for recovery of the dues as a public demand that interest as provided under Section 8 is admissible.
4. There was no provision in the Act for payment of interest when the same was quantified by the controlling authority and before the Collector was approached for its realisation. In fact, it is on the acceptance of the position that there was a lacuna in the law that Act 22 of 1987 brought about the incorporation of sub-section (3-A) in Section 7. That provision has prospective application.
5. Learned counsel for the appellant tried to rely upon the provisions of the Interest Act and the provisions of Section 34 of the Code of Civil Procedure. We do not find any support for the appellant's stand from either of the provisions. Admittedly, no notice was given demanding interest and the controlling authority is not a court for falling back on Section 34 of the Code. We are satisfied in the facts of the case that the appellant was not entitled to interest on the amount of gratuity found due to him. Since that was the only matter agitated in the appeal with the conclusion indicated, this appeal has to fail and is dismissed.
6. There would be no order for costs.
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