Payment of Gratuity Act, 1972 – CMA Inter Business Laws and Ethics Study Material is designed strictly as per the latest syllabus and exam pattern.
Payment of Gratuity Act, 1972 – CMA Inter Law and Ethics Study Material
Short Notes
Question 1.
Write short note on:
Forfeiture of Gratuity. (Dec 2012, 4 marks)
Answer:
Forfeiture of Gratuity:
- Gratuity can be forfeited for any employee whose services have been terminated for any act of violence, wilful omission or negligence causing damage or destruction to the property belonging to the employer.
- It can also be forfeited for any act which constitutes an offence involving moral turpitude.
- Where services have not been terminated on any of the above ground, the employer cannot withhold gratuity due to employee.
- Where the land of the employer is not vacated by the employee, gratuity cannot be with held.
Question 2.
Write short notes on:
Forfeiture (Gratuity Act, 1972) (June 2013, 4 marks)
Answer:
Forfeiture of Gratuity:
- Gratuity can be forfeited for any employee whose services have been terminated for any act of violence, wilful omission or negligence causing damage or destruction to the property belonging to the employer.
- It can also be forfeited for any act which constitutes an offence involving moral turpitude.
- Where services have not been terminated on any of the above ground, the employer cannot withhold gratuity due to employee.
- Where the land of the employer is not vacated by the employee, gratuity cannot be with held.
Descriptive Questions
Question 3.
State the nature of dispute as to gratuity that may be decided by the Controlling Authority. (June 2014, 3 marks)
Answer:
The Controlling Authority may decide the following disputes:
- Dispute as to amount of gratuity payable to an employee under the Payment of Gratuity Act.
- Dispute as to the admissibility of any claim of, or in relation to an employer for payment of gratuity.
- Dispute as to the person entitled to receive gratuity [Sec. 7(4)(a)].
Question 4.
Answer the question:
Under what circumstances the gratuity payable to an employee be forfeited? (June 2016, 8 marks)
Answer:
Forfeiture of Gratuity:
The legal provisions relating to the forfeiture of gratuity are contained in Section 4 (6) of the Payment of Gratuity Act, 1972 and may be summed up as under:
1. The gratuity payable to an employee shall be forfeited where the services of an employee have been terminated due to any act, willful omission or negligence on the part of the employee and employee’s such act etc. has caused:
- damage or loss to the property belonging to the employer, or
- destruction of the property belonging to the employer.
In this case, the gratuity payable to the employee shall be forfeited to the extent of the damage or loss caused to employer’s property due to employees act, omission or negligence [Section 4(6)(a)]
2. The gratuity payable to an employee may be forfeited:
- If the services of such employee have been termìnated for his riotous or disorderly conduct or any other Act of violence on his part, or
- If the services of such employee have been terminated for any Act which constitutes an offence involving moral turpitude, provided that such offence is committed by him in the course of his employment. In the above stated cases, the gratuity payable to an employee may be forfeited wholly or partially. [Section 4(6)(b)]
Following judicial decisions are important to note in connection with the forfeiture of gratuity by the employer:
- The right of the employer to forfeit the amount of gratuity can employee whose services were terminated due to any Act, willful omission or negligence causing any damage to the employer’s property is limited to the extent of damage and the proof of such damage. [Permali Wallance Ltd. Vs. State of M.P. (1996) IILLJ 515 (MP)].
- The right of the employer to forfeit the gratuity is available only in the circumstances enumerated in Section 4(6), as stated in points (1) and (2) above, and is not available in any other circumstances as employee’s right to gratuity is the statutory right. (K.C.Mathew Vs. Plantation Corpn. of Kerala Ltd. (2001) LLR 123 (ker.)).
- The refusal by the employees to surrender land belonging to the employer is not a ground for forfeiture of gratuity. (Travancore Plywood Industries Ltd. Vs. Regional Joint Labour Commissioner, (1996)11 LLJ 85 (ker.)).
- In case of termination of services on account of offence involving moral turpitude, the gratuity may be wholly or partially forfeited. In this regard, the Karnataka High Court has held that when an offence of theft under law involves moral turpitude, gratuity stands wholly forfeited in view Of Section 4 (6) of the Act. [Bharat Gas Mines Ltd. Vs. Regional Labour Commissioner (Central) (1987) 70 FJR 11 (Karnataka)].
Question 5.
Answer the question:
Explain the manner in which the gratuity payable to employees in a seasonal establishments is calculated under the Payment of Gratuity Act, 1972. State also the maximum amount of gratuity payable under the Act. (Dec 2016, 5 marks)
Answer:
Seasonal Establishments:
In the case of seasonal establishment the employees can be classified into 2 groups.
- Those who work throughout the year and
- Those who work only during the season.
The former are entitled to get the gratuity at the rate of 15 days wages for every completed year of service or part thereof in excess of 6 months. The latter are entitled to receive gratuity at the rate of 7 days for each season. Under Section 4(3) provides that the amount of gratuity payable to an employee shall not exceed ₹ 20 lakhs.
Question 6.
Discuss the procedure for determination of the amount of gratuity as per Section 7 of the Payment of Gratuity Act, 1972. (Dec 2017, 5 marks)
Answer:
Section 7 prescribes the procedure for determination of the amount of gratuity. As soon as the gratuity becomes payable, the employer shall, whether the employee has made application or not, determine the amount of gratuity. Then he is to give notice to the person to whom the gratuity is payable and also to the Controlling Authority, specifying the amount of gratuity so determined. The notice shall be in Form L.
The employer shall arrange to pay the amount of gratuity within 30 days from the date of its becoming payable to the person to whom it is payable. If it is not paid within the stipulated period the employer is liable to pay interest at the rate of 10% per annum. If the delay in payment is due to the fault of the employee and the employer has obtained permission in writing from the controlling authority for the delayed payment, on this ground, no interest is payable.
If the claim for gratuity is not found admissible, issue a notice in Form ‘M’ to the applicant employee, nominee or legal heir, as the case may be, specifying the reasons why the claim for gratuity ¡s not considered admissible. In either case a copy of the notice shall be endorsed to the controlling authority.
Question 7.
Mr. Gill, an employee of M/s Sonabheel Tea Ltd., continued to occupy the quarter of the company for eight months after superannuation, company decided to forfeit the amount of gratuity of Mr. Gill. Examine the decision taken by the company to forfeit the amount of gratuity in the light of the Payment of Gratuity Act, 1972. (Dec 2018, 5 marks)
Answer:
The gratuity of an employee, whose services have been terminated for any Act, willful omission or negligence causing any damage or loss to, or destruction of, property belonging to the employer, can be forfeited to the extent of the damage or loss so caused.
The gratuity payable to an employee may be wholly or partially forfeited:
- if the services of such employee have been terminated for his riotous or disorderly conduct or any other Act of violence on his part or
- if the services of such employee have been terminated for any Act which constitutes an offence involving moral turpitude, provided that such offence is committed by him in the course of his employment.
It is not a valid ground forfeiture of entire gratuity. In the above case, the company is entitled to charge the quarter rent as per rules and after adjustment of such charges, Mr. Gill is entitled to receive the balance gratuity.
Question 8.
Discuss the procedure for determination of the amount of gratuity. (Dec 2021, 5 marks)
Answer:
Amount of Gratuity:
As per Section 7 of the Payment of Gratuity Act, 1972 provides that the procedure for determination of the amount of gratuity. As soon as the gratuity becomes payable the employer shall whether the employee has made application or not, determine the amount of gratuity.
Then he is to give notice to the person to whom the gratuity is payable and also to the controlling authority, specifying the amount of gratuity so determined.
The employer shall arrange to pay the amount of gratuity within 30 days from the date of its becoming payable to the person to whom It is payable. If it is not paid within stipulated period the employer is liable to pay interest at the rate of 10 % per annum.
If the delay in payment is due to the fault of the employee and the employer has obtained permission in writing from the controlling authority for the delayed payment, on this ground, no interest is payable.
If the claim for gratuity is not found admissible, issue a notice in Form ‘M’ to the applicant employee, nominee or legal heir, as the case may be, specifying the reasons why the claim for gratuity is not considered admissible. In either case a copy of the notice shall be endorsed to the controlling authority.
Question 9.
What is the procedure of determining the amount of gratuity as per the Payment of Gratuity Act, 1972? (Dec 2022, 5 marks)
Practical Questions
Question 10.
Comment on the following based on legal provisions:
Mr. S.K. Paul employed in seasonal establishment and was not employed throughout the year claimed gratuity at the rate of 15 days wages for each year of service. But Employer refused to pay any Gratuity to employees of seasonal establishments. (Dec 2012, 2 marks)
Answer:
Employer shall pay gratuity at the rate of seven days wages for each season to employees who are employed in a seasonal establishment and who are not so employed throughout the year. Wages will include Basic and D.A. Hence Mr. Paul is entitled to Gratuity.
Question 11.
ABC Pvt. Ltd. incorporated on 2nd January 1980 carrying on business from the date of incorporation employing 50 persons. Due to loss, the number of employees reduced to five w.e.f. 02.06.2011. Mr. ‘A’ who retired on 31.05.2013 was refused gratuity on the ground that the total number of employees is below 10 (ten). Whether employer was justified? (June 2013, 3 marks)
Answer: .
The Payment of Gratuity Act, 1972 was enacted to provide for a scheme for the payment of gratuity to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops or other establishments who have rendered a minimum five years of continuous service with the establishment employing ten or more persons.
Every employee, other than apprentice irrespective of his wages is entitled to receive gratuity after he has rendered continuous service for five years or more. Gratuity is payable at the time of termination of his service either
- on superannuation or
- on retirement or resignation or
- on death or disablement due to accident or disease. Termination of services includes retrenchment.
However, the condition of five years continuous service is not necessary if services are terminated due to death or disablement. In case of death of the employee, the gratuity payable to hire is to be paid to his nominee, and if no nomination has been made, then to his heirs.
If the Act has become applicable to any establishment, it will continue to be applicable even if the number of persons employed falls below ten or any number as specified by the Central Government.
All the employees irrespective of salary or status are entitled to the payment of gratuity on completion of 5 years of service, in case of death or disablement there is no minimum eligibility period. In the light of above the employer is not justified in refusing gratuity to A.
Question 12.
Anurag was an employee of Coffee Estate Ltd. The whole undertaking of Coffee Estate Ltd. was taken over by a new company Asian Coffee Ltd. The Service of Anurag remained continuous in the new company. After serving for one year, Anurag met with an accident and became permanently disable. Anurag applied to the new company for the payment of gratuity. The company Asian Estate Ltd. refused to pay gratuity on the ground that Anurag has served only for a year in the company. Examine the validity of refusal of the company in the light of the provisions of the Payment of Gratuity Act, 1972. (Dec 2013, 3 marks)
Answer:
According to the Section 4(1) of the Payment of Gratuity Act,1 972, gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years or on his superannuation or, on his retirement or resignation or on his death or disablement due to accident or disease.
The condition of the completion of five years of continuous service is not essential in case of the termination of the employment of any employee due to death or disablement for the purpose of this section.
Disablement means such disablement as incapacities of an employee for the work which he was capable of performing before the accident or disease resulting in such disablement.
- The given problem fulfils all the above requirements as stated.
- Therefore, Anurag is entitled to recover gratuity after becoming permanently disabled, and continuous service of five years is not required in this case.
- Hence, the company cannot refuse to pay gratuity on the ground that he has served only for a year.
Question 13.
Mr. Mahavir joined the company on 25.05.1 987 and retired on 30.11.2012 when his salary was INR 70,000 per month. He also received conveyance allowance INR 20,000 per month and average overtime INR 1000 per month, calculate the amount of gratuity. (Dec 2013, 3 marks)
Answer:
He superannuated on 30.11.2012
Joined on 25.05.1987
He is entitled for 25 year 6 months + 5 = 26 years
Amount of gratuity
= \(\frac{15 \times 26 \times 70,000}{26}\)
INR 10,50,000
Maximum ceiling being INR 20,00,000
His gratuity is INR 10,50,000
Question 14.
Ram is employed in Sweet Sugar factory, a seasonal establishment. The factory was in operation for four months only during the financial years 2011-12. Ram was not in continuous service during this period. However, he has worked only 60 days. Referring to the provisions of The Payment of Gratuity Act, 1972, decide whether Ram is entitled to gratuity payable under the Act. Would your answer be the same in case Ram works for 100 days? (June 2014, 2 marks)
Answer:
For entitlement of gratuity, one must work for at least 75% of the days on which the establishment was open and in operation. The factory was in operation for 120 days.
One must work for 75% of 120 i.e. 90 days to claim gratuity. Ram is not entitled to gratuity, since he has actually worked for less than 75% of the number of days on which the establishment was in operation during such period.
If Ram had worked for 100 days, then he would have been entitled to gratuity since the number of days on which he would have worked, in that case, would have been 75% or more of the number of days on which the establishment was in operation.
Payment of Gratuity Act, 1972 CMA Inter Law, and Ethics Notes
1. Objective and Scope of Gratuity Act, 1972
- An act to provide for payment of gratuity to employees engaged in certain establishments.
- Applies to whole of India including Jammu & Kashmir.
- Objective of the act is to provide an old-age retirement social security benefit to an employee at the time of termination of services, a lump sum payment/amount.
- Amended by virtue of Gratuity (Amendment Act), 2018
- Ceiling of gratuity has been enhanced from 10 lakhs to 20 lakhs.
2. Applicability of the Act
- National Pension System
- National Pension System Trust
- Pension Fund
- Point of presence
- Document
- Individual pension Account
- Intermediary
- Central Record keeping Agency
- Regulated Assets
- Securities Appellate Tribunal
3. Employee for the purpose of the Act
- Person employed for wages.
- Excludes:
- Apprentice
Note:
Teachers are to be considered as an employee.
4. Payment of Gratuity
- Gratuity is payable on termination of employment provided he/she has rendered continuous service for a maximum of 5 years
- Gratuity is calculated on the basis of continuous service( for every completed year or part in excess of 6 months), at the rate of 15 days wages last drawn
- Gratuity Payable = Wages x Completed years of service x 15/26
5. Gratuity is payable on
- Retirement or resignation
- Death or disability
- Superannuation
6. Forfeiture of Gratuity
Gratuity forfeited on account of such act, omission or negligence which causes loss, damage or destruction is termed as partial forfeiture of gratuity since the same can be carried out only to the extent of loss, damage or destruction so caused.
As against this, in case the services of an employee get terminated due to violence or riotous act or committing an offence involving moral turpitude in relation to his employment, the same can lead to forfeiture of the whole or part of the gratuity.
If the services of an employee are terminated due to wilful omission or negligence which causes damage to the property of an employer, gratuity can be forfeited to the extent of damage or loss caused. The whole amount cannot be forfeited for wilful omission by employee.
7. Rights and Obligations of the Employer
As soon as the Gratuity becomes payable the employer shall determine the amount of gratuity & shall give the notice to the person to whom the gratuity is payable and to the controlling authority.
The employer shall arrange to pay the amount of gratuity within 30 days of the date of its becoming payable to the person to whom it is payable.
If such amount is not payable within due time, the employer shall pay from the date on which the gratuity becomes payable to the date on which it is paid, simple interest at the rate of 10% per annum.