P. Raghavulu And Son... v. Additional Labour Co..., Andhra Pradesh High Court, Judgment, Law, casemine.com

Factual and Procedural Background

The petitioner challenges the correctness of an order by respondent 1 directing the petitioner to pay gratuity to respondent 2 under Section 40 of the Andhra Pradesh Shops and Establishment Act, 1966. There was a dispute regarding the appointment date of respondent 2, but respondent 1 proceeded on the basis that respondent 2 was appointed on 21 June 1971. Respondent 2 voluntarily abandoned service on 1 June 1976, resulting in a continuous employment period of 4 years, 11 months, and 10 days. Respondent 2 claimed gratuity under Section 40 of the Act, which the petitioner resisted on the ground that respondent 2 had not completed the required continuous service period of five years to qualify for gratuity. Respondent 1 rejected this contention, relying on Clause (d) of the explanation to Section 40(1) of the Act and the analogous provision in Section 2(c) of the Payment of Gratuity Act, holding that respondent 2 was entitled to gratuity as the fraction of service close to five years was to be rounded up. Additionally, respondent 1 imposed a penalty of two months' wages for non-payment of gratuity. The petitioner filed this writ petition challenging that order.

Legal Issues Presented

Whether an employee who has been in continuous employment for less than five years but more than four and a half years is eligible to receive gratuity under Section 40 of the Andhra Pradesh Shops and Establishment Act, 1966.

Whether Clause (d) of the explanation to Section 40(1) of the Act applies to eligibility for gratuity or only to the quantification of gratuity once eligibility is established.

Arguments of the Parties

Petitioner's Arguments

The petitioner contended that Clause (d) of the explanation to Section 40(1) of the Act is intended only for the purpose of calculating the amount of gratuity and not for determining eligibility.

The petitioner argued that continuous employment for five full years is a prerequisite for eligibility, and the fraction of service exceeding half a year cannot be counted to meet the eligibility threshold.

The opinion does not contain a detailed account of respondent 2's or respondent 1's specific arguments beyond the order challenged.

Court's Reasoning and Analysis

The court analyzed Section 40 of the Andhra Pradesh Shops and Establishment Act, 1966, emphasizing two key components: eligibility for gratuity and the quantification of gratuity. The court noted that eligibility requires continuous employment for not less than five years. Clause (d) of the explanation to Section 40(1) allows counting a fraction of a year not less than half a year as a full year but only for calculating the amount of gratuity, not for determining eligibility. The court illustrated this by explaining that an employee with 5 years and 11 months of service would be entitled to gratuity for six years, but this rounding does not apply to the eligibility threshold. The court concluded that the first respondent misinterpreted Clause (d) by applying it to eligibility, which is not supported by the statutory language. Since respondent 2's continuous employment was less than five years, he was not eligible for gratuity under Section 40(1) of the Act.

Holding and Implications

The order of respondent 1 directing the petitioner to pay gratuity to respondent 2 is quashed.

The court issued a rule nisi accordingly and declined to impose costs. The direct effect is that the petitioner is not required to pay gratuity to respondent 2 as respondent 2 did not meet the eligibility criteria under Section 40(1) of the Act. No broader legal precedent was established beyond the interpretation of Clause (d) of the explanation to Section 40(1) regarding eligibility and quantification of gratuity.

P. Raghavulu And Son (By Its Proprietor, Pasupati Raghavulu) v. Additional Labour Court, Andhra Pradesh, Hyderabad, And Another

1. The petitioner herein challenges the correctness of the order of respondent 1 directing the petitioner to pay gratuity to respondent 2 under S. 40 of the Andhra Pradesh Shops and Establishment Act, 1966 (the Act, for short). There was some dispute as to when respondent 2 was appointed. The order of respondent 1 proceeded, however, on the basis that respondent 2 was appointed on 21 June, 1971. It appears respondent 2 voluntarily abandoned the services with effect from 1 June, 1976, with the result that he was in the service of the petitioner for a period of 4 years 11 months and 10 days. Respondent 2 laid a claim for payment of gratuity under S. 40 of the Act before respondent 1. The claim was resisted by the petitioner on the ground that respondent 2 had not been in the employment continuously for a period not less than 5 years and consequently he was not eligible to receive gratuity on termination of his services. The first respondent declined to accept the above contention on the ground that under S. 2(c) of the Payment of Gratuity Act, an employee working for 240 days in a year shall be deemed to be in continuous service for one year and, therefore, the second respondent was eligible for receiving gratuity. According to the first respondent, Cl. (d) to the explanation to S. 40(1) of the Act is analogous to the provisions contained in S. 2(c) of the Payment of Gratuity Act. Inasmuch as respondent 2 was in the employment for a period of 4 years 11 months, it was held that pursuant to Cl. (d) to explanation to S. 40(1) of the Act, respondent 2 would be entitled to receive gratuity. In that view, the petitioner had been required to pay gratuity for 5 years. In addition, the petitioner was also required to pay two months' wages by way of penalty for non-payment of gratuity. The above view of respondent 1 is challenged in this writ petition.

2. As the question turns upon the correct interpretation of S. 40 of the Act, it is relevant to extract the same:

“40. Conditions for terminating the service of an employee and payment of gratuity.—(1) No employer shall without a reasonable cause and except for misconduct, terminate the service of an employee who has bean in his employment continuously for a period of not less than six months without giving such employee, at least one month's notice in writing or wages in lieu thereof and in respect of an employee who has been in his employment continuously for a period of not less than five years, a gratuity amounting to fifteen days' average wages for each year of continuous employment.

Explanation:—For the purpose of this sub-section.

(d) Where total continuous employment is for a fraction of a year or extends over a fraction of a year in addition to one or more completed years of continuous employment such fraction, if it is not less than a half year shall be counted as a year of continuous employment in calculating the total number of years for which the gratuity is to be given.”

Learned counsel for the petitioner contended that the first respondent misunderstood the effect of Cl. (d) of explanation to S. 40(1) of the Act. It is urged that the provision that where an employee has been in service for more than half-year it shall be counted as a year of continuous employment is for a limited purpose for qualifying that amount of gratuity and not for determining whether the employee is eligible for payment of gratuity. It appears to me that the contention is well-founded.

3. There are two ingredients in so far as S. 40 of the Act is concerned. The first ingredient is the eligibility itself. Section 40 provides that every employee who has been in employment continuously for a period of not less than five years shall be eligible to receive gratuity. Once the eligibility is established, the second ingredient is to quantify the amount of gratuity. Section 40(1) of the Act provides that where an employee does become eligible for payment of gratuity, the gratuity payable to him shall be 15 days' average wages for each year of continuous employment. Clause (d) of explanation to S. 40(1) of the Act, which is quoted above provides that where the total continuous employment is for a fraction of a year or extends over a fraction of a year in addition to one or more completed years of continuous employment, such fraction if it is not less than a half year, shall be counted as a year of continuous employment in calculating the total number of years for which the gratuity is to be given. (Emphasis supplied.) It is clear from the above explanation that if the service of an employee extends over a fraction of a year and if such fraction is in excess of a half year, if shall be counted as a year of continuous employment for the limited purpose of calculating the total number of years for which the gratuity is to be given. This may be illustrated. For instance, if an employee were to be in service for a total period of 5 years 11 months and 10 days, he shall be considered to have been in continuous employment for a period of 6 years and the gratuity payable to him shall be quantified at the rate of 15 days' average wages for each year of “continuous employment”. Explanation (d) in the terms above stated, has no effect on the initial question regarding eligibility. It is not provided in explanation (d) to S. 40 of the Act that if an employee is in service for more than a half year it shall be counted as continuous employment for the purpose of reckoning the eligibility for receiving gratuity under the Act. It, therefore, seems to me that the first respondent misconstrued the effect of explanation (e) to S. 40(1) of the Act. Respondent 2 having been in continuous employment for less than 5 years, is not eligible to payment of gratuity under S. 40(1) of the Act.

4. The order of the first respondent directing the petitioner to pay gratuity to respondent 2 is, therefore, contrary to the provisions contained in S. 40(1) of the Act and is accordingly quashed. A rule nisi shall issue accordingly. No costs.

5. It may be mentioned that respondent 2 is not present either in person or through an advocate although notice was served. Learned Government Pleader representing respondent 1 has also not been present and no counter has been filed either.

Writ Petition No. 3969 of 1979

P. Raghavulu And Son... v. Additional Labour Co...