Supreme Court allows gratuity claim for employee with continuous service: Netram Sahu vs. State of Chhattisgarh (2018)

Date of the Judgment: 23 March 2018

Citation: (2018) INSC 219

Judges: R. K. Agrawal, J., Abhay Manohar Sapre, J.

Can an employee be denied gratuity after rendering 25 years of service, merely because a major portion of the service was as a daily wager? The Supreme Court of India addressed this question in the case of Netram Sahu vs. State of Chhattisgarh, where an employee’s claim for gratuity was initially rejected by the High Court. The Supreme Court overturned the High Court’s decision, ruling that an employee is entitled to gratuity for the entire period of service, including the time worked as a daily wager, once the services are regularized. The judgment was delivered by a two-judge bench comprising Justices R. K. Agrawal and Abhay Manohar Sapre, with the opinion authored by Justice Abhay Manohar Sapre.

Case Background

The appellant, Netram Sahu, was initially appointed as a daily wager on April 1, 1986, in the Water Resources Department of the State of Chhattisgarh. He was attached to the office of SDO (E/M) Light Machinery Tubewell & Gage Sub-Division Sakri. His services were later regularized on the work charge establishment as a Pump Operator on May 6, 2008. After reaching the age of superannuation, he retired on July 30, 2011. However, the State did not pay him his gratuity, leading him to file an application before the Controlling Authority under the Payment of Gratuity Act, 1972.

The Controlling Authority allowed his claim, stating that he had rendered 25 years and 3 months of service (22 years and 1 month as a daily wager and 3 years and 2 months as a regular employee) and was therefore entitled to gratuity. The State appealed this decision, but the Appellate Authority dismissed the appeal. The State then filed a writ petition in the High Court of Chhattisgarh, which was allowed, setting aside the orders of the Controlling Authority and the Appellate Authority. The employee then appealed to the Division Bench, which was also dismissed. This led to the appeal before the Supreme Court.

Timeline

Course of Proceedings

The Controlling Authority under the Payment of Gratuity Act, 1972, initially allowed the appellant’s claim for gratuity, recognizing his 25 years and 3 months of service. The Appellate Authority upheld this decision. However, the High Court of Chhattisgarh at Bilaspur, in its writ jurisdiction, set aside these orders, stating that the appellant was not eligible for gratuity as he had not completed five years of continuous service as a regular employee. The Division Bench of the High Court affirmed the Single Judge’s decision, leading to the appeal before the Supreme Court.

Legal Framework

The case revolves around the interpretation of the Payment of Gratuity Act, 1972, specifically:

• Section 2(e) of the Payment of Gratuity Act, 1972 defines “employee” as any person (other than an apprentice) employed on wages, in any establishment, factory, mine, oilfield, plantation, port, railway company, shop or other establishment.
• Section 2A of the Payment of Gratuity Act, 1972 defines “continuous service” and specifies the conditions under which an employee is considered to have rendered continuous service for the purpose of gratuity.

The core issue is whether the appellant’s service as a daily wager should be included in calculating his total continuous service for gratuity, despite not being a regular employee for the majority of his service period. The Act aims to provide a safety net for employees who have served their employers for a long period. The interpretation of “continuous service” is crucial in determining the employee’s eligibility for gratuity.

Arguments

Appellant’s Arguments:

• The appellant argued that he had rendered a total of 25 years and 3 months of service to the State, which should be considered for calculating gratuity.
• The appellant contended that his services were regularized by the State on 06.05.2008, and therefore, the entire period of service, including the time as a daily wager, should be counted towards gratuity.
• The appellant emphasized that the definition of “continuous service” under Section 2A of the Payment of Gratuity Act, 1972, was satisfied in his case, as he had worked for more than 25 years.
• The appellant argued that no provision under the Payment of Gratuity Act, 1972, disentitled him from claiming gratuity or prohibited him from taking benefit of his long and continuous period of 22 years of service rendered prior to regularization.

Respondent’s Arguments:

• The State argued that the appellant was not eligible for gratuity as he had worked as a daily wager for 22 years and only 3 years as a regular employee.
• The State contended that the appellant had not worked continuously for a period of 5 years as a regular employee, which they argued was a requirement under the Payment of Gratuity Act, 1972.
• The State relied on the decision of the Supreme Court in Secretary, State of Karnataka & Ors. vs. Umadevi(3) & Ors., (2006) 4 SCC 1 to argue that the appellant was not entitled to claim gratuity.

Submissions of the Parties

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for consideration:

1. Whether the High Court (Single Judge/Division Bench) was justified in holding that the appellant (employee) was not entitled to claim gratuity from the State (respondent herein) for the services rendered by him.
2. Whether the appellant can be held to have rendered qualified service, i.e., continuous service as specified in Section 2(e) read with Section 2A of the Payment of Gratuity Act, 1972, so as to make him eligible to claim gratuity, as provided under the Act, from the State.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

How each authority was viewed by the Court?

• The Supreme Court distinguished the case of Secretary, State of Karnataka & Ors. vs. Umadevi(3) & Ors., (2006) 4 SCC 1 stating that it does not apply to cases where services have been regularized.
• The Supreme Court explained the definition of “employee” under Section 2(e) of the Payment of Gratuity Act, 1972.
• The Supreme Court explained the definition of “continuous service” under Section 2A of the Payment of Gratuity Act, 1972.
• The Supreme Court cited Firm Kaluram Sitaram vs. The Dominion of India (AIR 1954 Bombay 50) to emphasize that the State should not rely on technicalities and should act as an honest person when dealing with citizens.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• The appellant had rendered a long period of service (25 years and 3 months) to the State.
• The State had regularized the appellant’s services, which implied recognition of his past service.
• The Payment of Gratuity Act, 1972, is a welfare legislation intended to benefit employees who have served their employers for a long time.
• The State should not deny a genuine claim on technical grounds, especially after having taken work from the appellant for 22 years as a daily wager.
• The Court emphasized that it would be a travesty of justice to deny the appellant his legitimate claim of gratuity.

Logical Reasoning

The Court rejected the State’s argument that only service as a regular employee should be considered, emphasizing that the regularization of services entitled the appellant to count his entire service period for gratuity.

The court observed, “In our considered opinion, once the State regularized the services of the appellant while he was in State services, the appellant became entitled to count his total period of service for claiming the gratuity amount subject to his proving continuous service of 5 years as specified under Section 2A of the Act which, in this case, the appellant has duly proved.”

The Court also noted, “It was indeed the State who took 22 years to regularize the service of the appellant and went on taking work from the appellant on payment of a meager salary of Rs.2776/- per month for 22 long years uninterruptedly and only in the last three years, the State started paying a salary of Rs.11,107/- per month to the appellant.”

The Court further stated, “It being a welfare legislation meant for the benefit of the employees, who serve their employer for a long time, it is the duty of the State to voluntarily pay the gratuity amount to the appellant rather than to force the employee to approach the Court to get his genuine claim.”

Key Takeaways

• An employee’s total service, including the period as a daily wager, should be considered for gratuity calculation once the services are regularized.
• The regularization of services implies recognition of past service, entitling the employee to count the entire service period for gratuity.
• The Payment of Gratuity Act, 1972, is a welfare legislation intended to benefit employees who have served their employers for a long time.
• The State should not deny a genuine claim on technical grounds, especially after having taken work from the employee for a long period.
• This judgment clarifies that the benefit of gratuity cannot be denied to an employee who has rendered long and continuous service, merely because a major portion of the service was as a daily wager.

Directions

The Supreme Court directed the State to release/pay the gratuity amount as determined by the Controlling Authority within three months to the appellant, along with costs of Rs. 25,000.

Development of Law

The ratio decidendi of this case is that once the services of an employee are regularized, the entire period of service, including the time spent as a daily wager, must be considered for calculating gratuity under the Payment of Gratuity Act, 1972. This judgment clarifies the interpretation of “continuous service” under the Act, ensuring that employees are not deprived of their gratuity benefits due to technicalities. This is a change in the previous position of law as the High Court had denied the gratuity.

Conclusion

The Supreme Court allowed the appeal, setting aside the High Court’s judgment and restoring the orders of the Controlling Authority and Appellate Authority. The Court held that the appellant was entitled to gratuity for the entire period of his service, including the time he worked as a daily wager, as his services were subsequently regularized. This judgment reinforces the welfare nature of the Payment of Gratuity Act, 1972, and ensures that employees who have rendered long and continuous service are not denied their rightful benefits.