Dear Sridhar,
In our company, earlier it was not a ltd. company, but now it has changed to a pvt. ltd. company. Recently, 4 months have been completed. I have completed 3 & 1/2 years in this organization. Is gratuity applicable? Is my earlier service considered? Kindly give some suggestions for this.
If they haven't appointed you afresh and your employment is continued, yes, you will be entitled to your gratuity after the minimum eligibility period, i.e., 4 years and 240 days of service. Please do tell if they employed you afresh or not.
From India, New Delhi
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320In our company, earlier it was not a ltd. company, but now it has changed to a pvt. ltd. company. Recently, 4 months have been completed. I have completed 3 & 1/2 years in this organization. Is gratuity applicable? Is my earlier service considered? Kindly give some suggestions for this.
If they haven't appointed you afresh and your employment is continued, yes, you will be entitled to your gratuity after the minimum eligibility period, i.e., 4 years and 240 days of service. Please do tell if they employed you afresh or not.
From India, New Delhi
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Hi Mr. Sridhar,
Changes in the constitution of the establishment are inconsequential insofar as the applicability of the P.G. Act is concerned, and it will not have any negative impact on the length of service rendered by its employees. Conversion of an establishment from sole-proprietorship to that of a partnership or to that of a limited company under the Companies Act, 1956, etc., is a mere cosmetic change in relation to the subject matter of gratuity.
Since the application of the Act has already commenced, it will continue to apply notwithstanding the subsequent changes in the establishment's constitution and the number of employees.
From India, Salem
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Changes in the constitution of the establishment are inconsequential insofar as the applicability of the P.G. Act is concerned, and it will not have any negative impact on the length of service rendered by its employees. Conversion of an establishment from sole-proprietorship to that of a partnership or to that of a limited company under the Companies Act, 1956, etc., is a mere cosmetic change in relation to the subject matter of gratuity.
Since the application of the Act has already commenced, it will continue to apply notwithstanding the subsequent changes in the establishment's constitution and the number of employees.
From India, Salem
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Advocate Shri Kamal Kant Ji, In my view the minimum eligibility period is 5 years completed service. Judgement of Madras HC is not binding in other states.
From India, Mumbai
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From India, Mumbai
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Dear Keshav,
This is not according to any judgment only. The same is given in the act itself. Also there are a lot of judgments on the same not only one. This is simple interpretation of the provision. The logic behind this is given below please understand the same.
Section 4 (1) says about the eligibility for gratuity. The section is given below.
4. Payment of gratuity.—(1) 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,—
(a) on his superannuation, or
(b) on his retirement or resignation, or
(c) on his death or disablement due to accident or disease:
Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement:
1[Provided further that in the case of death of the employee, gratuity payable to him shall be paid to his nominee or, if no nomination has been made, to his heirs, and where any such nominees or heirs is a minor, the share of such minor, shall be deposited with the controlling authority who shall invest the same for the benefit of such minor in such bank or other financial institution, as may be prescribed, until such minor attains majority.]
Now let us see the definition of one continuous year of service under section 2A
[2A. Continuous service.—For the purposes of this Act,—
(1) an employee shall be said to be in continuous service for a period if he has, for that period, been in uninterrupted service, including service which may be interrupted on account of sickness, accident, leave, absence from duty without leave (not being absence in respect of which an order 2[***] treating the absence as break in service has been passed in accordance with the standing orders, rules or regulations governing the employees of the establishment), lay-off, strike or a lock-out or cessation of work not due to any fault of the employee, whether such uninterrupted or interrupted service was rendered before or after the commencement of this Act;
(2) where an employee (not being an employee employed in a seasonal establishment) is not in continuous service within the meaning of clause (1), for any period of one year or six months, he shall be deemed to be in continuous service under the employer—
(a) for the said period of one year, if the employee during the period of twelve calendar months preceding the date with reference to which calculation is to be made, has actually worked under the employer for not less than—
(i) one hundred and ninety days, in the case of any employee employed below the ground in a mine or in an establish-ment which works for less than six days in a week; and
(ii) two hundred and forty days, in any other case;
Now in the light of the above provisions we can say that a person is eligible for Gratuity when he completes 4 year and 240 days in the fifth year.
Please revert in case of any further doubt.
From India, New Delhi
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This is not according to any judgment only. The same is given in the act itself. Also there are a lot of judgments on the same not only one. This is simple interpretation of the provision. The logic behind this is given below please understand the same.
Section 4 (1) says about the eligibility for gratuity. The section is given below.
4. Payment of gratuity.—(1) 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,—
(a) on his superannuation, or
(b) on his retirement or resignation, or
(c) on his death or disablement due to accident or disease:
Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement:
1[Provided further that in the case of death of the employee, gratuity payable to him shall be paid to his nominee or, if no nomination has been made, to his heirs, and where any such nominees or heirs is a minor, the share of such minor, shall be deposited with the controlling authority who shall invest the same for the benefit of such minor in such bank or other financial institution, as may be prescribed, until such minor attains majority.]
Now let us see the definition of one continuous year of service under section 2A
[2A. Continuous service.—For the purposes of this Act,—
(1) an employee shall be said to be in continuous service for a period if he has, for that period, been in uninterrupted service, including service which may be interrupted on account of sickness, accident, leave, absence from duty without leave (not being absence in respect of which an order 2[***] treating the absence as break in service has been passed in accordance with the standing orders, rules or regulations governing the employees of the establishment), lay-off, strike or a lock-out or cessation of work not due to any fault of the employee, whether such uninterrupted or interrupted service was rendered before or after the commencement of this Act;
(2) where an employee (not being an employee employed in a seasonal establishment) is not in continuous service within the meaning of clause (1), for any period of one year or six months, he shall be deemed to be in continuous service under the employer—
(a) for the said period of one year, if the employee during the period of twelve calendar months preceding the date with reference to which calculation is to be made, has actually worked under the employer for not less than—
(i) one hundred and ninety days, in the case of any employee employed below the ground in a mine or in an establish-ment which works for less than six days in a week; and
(ii) two hundred and forty days, in any other case;
Now in the light of the above provisions we can say that a person is eligible for Gratuity when he completes 4 year and 240 days in the fifth year.
Please revert in case of any further doubt.
From India, New Delhi
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Advocate Shri. Kamal Kant ji,
I respect your views. My views are different from yours. I reserve my submission on my views until other members discuss this issue. This may help in enhancing the knowledge of the HR community, including myself.
From India, Mumbai
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I respect your views. My views are different from yours. I reserve my submission on my views until other members discuss this issue. This may help in enhancing the knowledge of the HR community, including myself.
From India, Mumbai
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To all the members who are closely following this thread:
This is in response to the divergent views being exchanged between our learned members Mr. Kamalkant and Mr. Korgaonkar. In this connection, I would like to invite your kind attention to my reply posted on 25-02-13 for the query on 'eligibility for gratuity' raised by Ashima. Reiterating my brief viewpoint, I add the following in order to clear the cloud of confusion:
'Eligibility for gratuity' is, in my considered opinion, entirely different from 'Entitlement to gratuity'. Normally, 'eligibility' makes a person qualified for a certain right under a statute whereas 'entitlement' enables the same person to stake a claim for the enforcement of that right. The difference may seem apparently very thin and subtle, but the implication is very much vast and deep. It is always correct that an entitled person is an eligible one but not necessarily vice-versa. All will agree with me that what is contemplated under the Payment of Gratuity Act, 1972 is a scheme of gratuity to industrial employees based on a certain length of blemishless service. To be positively brought into the scheme, one should have certain qualifications. In the first place, he should be an 'employee' as defined under section 2(e) of the Act. Secondly, there should be termination of his service on account of superannuation, retirement, resignation, death, or disability due to accident or disease after rendering not less than 5 years of continuous service. But the proviso to the sub-section provides the relaxation that the condition of rendering 5 years of service is not necessary in the case of death or disability. Therefore, in all other cases, if a person wants to take advantage of the gratuity scheme contemplated by the Act, he has to prove that his period of service was continuous for not less than 5 years. Section 4(1) incorporates the concept of gratuity being a reward for long continuous and meritorious service. Adverting to the definition of continuous service under section 2A, the insertion of the new sub-section was consequent on the legislative intervention suggested by the Supreme Court in Lalappa Lingappa v. Laxmi Vishnu Textile Mills Ltd (AIR 1981-SC 852). As I said in my earlier post, it is only for the specific purpose of arriving at the actual number of days worked in a particular period of time in order to ascertain the entitlement of gratuity for that period. In other words, the emphasis in Section 4(1) is on continuity of employment whereas in Section 2A it is on the uninterrupted employment. While considering the eligibility of a workman for gratuity on voluntary resignation in Dharshan Engg Works v. Controlling Authority (1983 Lab IC), the Supreme Court held that the minimum period of qualifying service for 5 years by a workman for being eligible for gratuity on voluntary resignation under section 4(b) of the Act could not be stamped as sufficiently long minimum in the context of making him stick to the employer. In construing the word 'workman' in section 33C(2) of the Industrial Disputes Act, 1947 in National Building Construction Corporation case (AIR 1972 SC 1579), the Supreme Court held that the word included a dismissed workman also though in the definition of that word a dismissed workman is included only for the purpose of industrial disputes under section 10. Again quoting yet two other judgments of the Honorable Supreme Court in AIR 1997 SC 628 and ONGC (1997) 2 SCC 42, I conclude my reply with the following observations of the Supreme Court:
"While interpreting a definition, it has to be borne in mind that the interpretation placed on it should not only not be repugnant to the context, it should also be such as would aid the achievement of the purpose which is sought to be served by the Act. A construction which would defeat or was likely to defeat the purpose of the Act has to be ignored and not accepted."
Thank you.
From India, Salem
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This is in response to the divergent views being exchanged between our learned members Mr. Kamalkant and Mr. Korgaonkar. In this connection, I would like to invite your kind attention to my reply posted on 25-02-13 for the query on 'eligibility for gratuity' raised by Ashima. Reiterating my brief viewpoint, I add the following in order to clear the cloud of confusion:
'Eligibility for gratuity' is, in my considered opinion, entirely different from 'Entitlement to gratuity'. Normally, 'eligibility' makes a person qualified for a certain right under a statute whereas 'entitlement' enables the same person to stake a claim for the enforcement of that right. The difference may seem apparently very thin and subtle, but the implication is very much vast and deep. It is always correct that an entitled person is an eligible one but not necessarily vice-versa. All will agree with me that what is contemplated under the Payment of Gratuity Act, 1972 is a scheme of gratuity to industrial employees based on a certain length of blemishless service. To be positively brought into the scheme, one should have certain qualifications. In the first place, he should be an 'employee' as defined under section 2(e) of the Act. Secondly, there should be termination of his service on account of superannuation, retirement, resignation, death, or disability due to accident or disease after rendering not less than 5 years of continuous service. But the proviso to the sub-section provides the relaxation that the condition of rendering 5 years of service is not necessary in the case of death or disability. Therefore, in all other cases, if a person wants to take advantage of the gratuity scheme contemplated by the Act, he has to prove that his period of service was continuous for not less than 5 years. Section 4(1) incorporates the concept of gratuity being a reward for long continuous and meritorious service. Adverting to the definition of continuous service under section 2A, the insertion of the new sub-section was consequent on the legislative intervention suggested by the Supreme Court in Lalappa Lingappa v. Laxmi Vishnu Textile Mills Ltd (AIR 1981-SC 852). As I said in my earlier post, it is only for the specific purpose of arriving at the actual number of days worked in a particular period of time in order to ascertain the entitlement of gratuity for that period. In other words, the emphasis in Section 4(1) is on continuity of employment whereas in Section 2A it is on the uninterrupted employment. While considering the eligibility of a workman for gratuity on voluntary resignation in Dharshan Engg Works v. Controlling Authority (1983 Lab IC), the Supreme Court held that the minimum period of qualifying service for 5 years by a workman for being eligible for gratuity on voluntary resignation under section 4(b) of the Act could not be stamped as sufficiently long minimum in the context of making him stick to the employer. In construing the word 'workman' in section 33C(2) of the Industrial Disputes Act, 1947 in National Building Construction Corporation case (AIR 1972 SC 1579), the Supreme Court held that the word included a dismissed workman also though in the definition of that word a dismissed workman is included only for the purpose of industrial disputes under section 10. Again quoting yet two other judgments of the Honorable Supreme Court in AIR 1997 SC 628 and ONGC (1997) 2 SCC 42, I conclude my reply with the following observations of the Supreme Court:
"While interpreting a definition, it has to be borne in mind that the interpretation placed on it should not only not be repugnant to the context, it should also be such as would aid the achievement of the purpose which is sought to be served by the Act. A construction which would defeat or was likely to defeat the purpose of the Act has to be ignored and not accepted."
Thank you.
From India, Salem
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Dear Uma Kanth,
Nice reply, but not everybody will be able to understand the difference between both. What we are discussing here is whether a person is entitled to gratuity when completing 4 years and 240 days, which aligns with my personal experiences, or exactly after 5 years from the date of appointment. The Gratuity Act is a beneficial legislation, and when interpreting any provision of such legislation, we must provide the most liberal interpretation possible. In the Lalappa Case (copy attached), the Supreme Court deliberated on the concept of Continuous Services. However, when determining gratuity entitlement, we must consider whether the fifth year completes in 240 days as stipulated in the act or after an exact 5-year period from the appointment date.
In my opinion, 240 days constitute a completed year of service as per the Gratuity Act. Therefore, a person is entitled to gratuity upon completing 4 years and 240 days of Continuous Services with one employer.
Thank you.
From India, New Delhi
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Nice reply, but not everybody will be able to understand the difference between both. What we are discussing here is whether a person is entitled to gratuity when completing 4 years and 240 days, which aligns with my personal experiences, or exactly after 5 years from the date of appointment. The Gratuity Act is a beneficial legislation, and when interpreting any provision of such legislation, we must provide the most liberal interpretation possible. In the Lalappa Case (copy attached), the Supreme Court deliberated on the concept of Continuous Services. However, when determining gratuity entitlement, we must consider whether the fifth year completes in 240 days as stipulated in the act or after an exact 5-year period from the appointment date.
In my opinion, 240 days constitute a completed year of service as per the Gratuity Act. Therefore, a person is entitled to gratuity upon completing 4 years and 240 days of Continuous Services with one employer.
Thank you.
From India, New Delhi
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Thanks, Mr. Kamal!
Simply put, eligibility for gratuity will arise only when the employee completes his 5th year of service in the same establishment, i.e., there is continuity of employment up to 5 years. As you mentioned, if he leaves his employment upon completing the 240th day of service, he will not fulfill the required minimum length of service from the date of entry. That's my point.
From India, Salem
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Simply put, eligibility for gratuity will arise only when the employee completes his 5th year of service in the same establishment, i.e., there is continuity of employment up to 5 years. As you mentioned, if he leaves his employment upon completing the 240th day of service, he will not fulfill the required minimum length of service from the date of entry. That's my point.
From India, Salem
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Dear Shri Umakanthan
I find the discussion very interesting , more so for the technical deftness with which you explained the scope of Sec.4(1) and Sec.2-A and the expressions ‘Eligibility’ and ‘Entitlement’. However, without going into legal nuances of the discussion in order to keep it simple, I may say that there is no difficulty in determining an employee’s eligibility with reference Sec.4(1) where he is in employment under an employer for five years uninterruptedly. However, the difficulty arises when an employee is not able to complete the fifth year or the last 12 months since he gets terminated after serving eight or nine months.
If the eligibility is to be determined solely on the basis of Sec. 4(1), he becomes ineligible. To deal with such contingencies, Sec. 2-A, as you are well aware, has been introduced where in a deeming provision was incorporated under Sub-Sec.(2)(a) &(b) of Sec.2A. This suggests that an employee’s eligibility, in fact, needs to be determined with reference to Sec.4(1) read with Sec.2-A but not in isolation since Sec.2-A defines what is ‘continuous service referred in Sec.4(1) . Thus though technically, the eligibility is to be determined on the basis of continuous service of 5 years under Sec.4(1) but practically, the Act renders eligible an employee who completed 4 years and 8 months(240 days) or thereabouts. It being so, the view of Mr.Kamalkant finds support in the aforesaid legal provisions.
B.Saikumar
HR & LabourLaw Advisor
Mumbai
From India, Mumbai
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I find the discussion very interesting , more so for the technical deftness with which you explained the scope of Sec.4(1) and Sec.2-A and the expressions ‘Eligibility’ and ‘Entitlement’. However, without going into legal nuances of the discussion in order to keep it simple, I may say that there is no difficulty in determining an employee’s eligibility with reference Sec.4(1) where he is in employment under an employer for five years uninterruptedly. However, the difficulty arises when an employee is not able to complete the fifth year or the last 12 months since he gets terminated after serving eight or nine months.
If the eligibility is to be determined solely on the basis of Sec. 4(1), he becomes ineligible. To deal with such contingencies, Sec. 2-A, as you are well aware, has been introduced where in a deeming provision was incorporated under Sub-Sec.(2)(a) &(b) of Sec.2A. This suggests that an employee’s eligibility, in fact, needs to be determined with reference to Sec.4(1) read with Sec.2-A but not in isolation since Sec.2-A defines what is ‘continuous service referred in Sec.4(1) . Thus though technically, the eligibility is to be determined on the basis of continuous service of 5 years under Sec.4(1) but practically, the Act renders eligible an employee who completed 4 years and 8 months(240 days) or thereabouts. It being so, the view of Mr.Kamalkant finds support in the aforesaid legal provisions.
B.Saikumar
HR & LabourLaw Advisor
Mumbai
From India, Mumbai
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Thank you, Mr. Saikumar!
Yes, I do agree that technically speaking, an employee earns continuous service on the date of completion of 240 days in the preceding 12 calendar months with respect to the date of termination on account of resignation. At the same time, 5 years of continuous service have to be reckoned with respect to the date of entry only. When the date of resignation falls on the day before the actual date of completion of 5 years, certainly, he could not have completed 240 days in the preceding 12 calendar months because every block of 12 calendar months will have to be pushed back prior to the date of entry. Such an untenable approach will result in an unwarranted anomaly. That is why I insist that the definition under section 2A, being for a different purpose, should not be read conjunctively with S4(1) because of the qualifying phrase "not less than five years." When the law prescribes a condition by means of specific time, number, process, gender, or category, or class of people, it has to be strictly observed according to the purpose, and no humane approach emanating from tendencies of grace and compassion will have any room.
With kind regards and thanks again.
From India, Salem
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Yes, I do agree that technically speaking, an employee earns continuous service on the date of completion of 240 days in the preceding 12 calendar months with respect to the date of termination on account of resignation. At the same time, 5 years of continuous service have to be reckoned with respect to the date of entry only. When the date of resignation falls on the day before the actual date of completion of 5 years, certainly, he could not have completed 240 days in the preceding 12 calendar months because every block of 12 calendar months will have to be pushed back prior to the date of entry. Such an untenable approach will result in an unwarranted anomaly. That is why I insist that the definition under section 2A, being for a different purpose, should not be read conjunctively with S4(1) because of the qualifying phrase "not less than five years." When the law prescribes a condition by means of specific time, number, process, gender, or category, or class of people, it has to be strictly observed according to the purpose, and no humane approach emanating from tendencies of grace and compassion will have any room.
With kind regards and thanks again.
From India, Salem
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