Supreme Court clarifies gratuity eligibility for teachers under the Payment of Gratuity Act: Birla Institute of Technology vs. State of Jharkhand (2019)

Date of the Judgment: January 07, 2019

Citation: 2019 INSC 14

Judges: Abhay Manohar Sapre, J., Indu Malhotra, J.

Can teachers claim gratuity under the Payment of Gratuity Act, 1972? The Supreme Court of India addressed this question in a recent case, clarifying whether teachers fall under the definition of “employee” as per the Act. This judgment has significant implications for educational institutions and their teaching staff.

The core issue revolved around whether a teacher, specifically an Assistant Professor at the Birla Institute of Technology, is entitled to gratuity under the Payment of Gratuity Act, 1972. The Supreme Court, in this case, examined the definition of “employee” under the Act to determine if it includes teachers.

The judgment was delivered by a two-judge bench comprising Justice Abhay Manohar Sapre and Justice Indu Malhotra. Justice Abhay Manohar Sapre authored the judgment.

Case Background

The case involves a dispute over the payment of gratuity to Respondent No. 4, a former Assistant Professor at Birla Institute of Technology (BIT), the appellant. Respondent No. 4 joined BIT on September 16, 1971, and retired on November 30, 2001, after reaching the age of superannuation.

Following his retirement, Respondent No. 4 requested the payment of gratuity under the Payment of Gratuity Act, 1972. BIT refused to pay the gratuity, leading Respondent No. 4 to file an application with the controlling authority under the Act.

The controlling authority ruled in favor of Respondent No. 4 on September 7, 2002, directing BIT to pay Rs. 3,38,796 along with 10% interest. BIT appealed this decision, but the appellate authority dismissed the appeal on April 15, 2005. Subsequently, BIT filed a writ petition in the High Court, which was also dismissed on January 12, 2007. A Letters Patent Appeal (LPA) filed by BIT was also dismissed by the Division Bench of the High Court, leading to the present appeal before the Supreme Court.

Timeline

Course of Proceedings

The controlling authority under the Payment of Gratuity Act, 1972, initially ruled in favor of Respondent No. 4, directing the appellant, Birla Institute of Technology (BIT), to pay gratuity along with interest. BIT appealed this order, but the appellate authority upheld the decision of the controlling authority.

BIT then filed a writ petition before the High Court of Jharkhand at Ranchi. A single judge of the High Court dismissed the writ petition, affirming the orders of the authorities under the Act. BIT subsequently filed a Letters Patent Appeal (LPA) before the Division Bench of the High Court, which was also dismissed. This final dismissal by the High Court led BIT to file a special leave petition before the Supreme Court of India.

Legal Framework

The core legal issue revolves around the interpretation of the term “employee” under Section 2(e) of the Payment of Gratuity Act, 1972. The Act defines “employee” as:

“…any person (other than an apprentice) who is employed for wages, whether the terms of such employment are express or implied, in any kind of work, manual or otherwise, in or in connection with the work of a factory, mine, oilfield, plantation, port, railway company, shop or other establishment and to whom wages are paid, but does not include any such person who holds a post under the Central Government or a State Government and is governed by any other Act or by any rules providing for payment of gratuity.”

The Supreme Court examined whether the term “employee” as defined in Section 2(e) of the Payment of Gratuity Act, 1972, includes teachers. The court also considered the implications of Section 1(3)(c) of the Act, which extends the Act’s provisions to establishments, including educational institutions.

Arguments

Appellant’s Arguments (Birla Institute of Technology):

• The appellant argued that the issue is no longer res integra (a matter not yet decided) and has been settled by the Supreme Court in the case of Ahmadabad Pvt. Primary Teachers Association vs. Administrative Officer and Others (2004) 1 SCC 755.
• The appellant contended that the Supreme Court in Ahmadabad Pvt. Primary Teachers Association (supra) held that a teacher is not an “employee” under Section 2(e) of the Payment of Gratuity Act, 1972, and therefore, not entitled to gratuity under the Act.
• The appellant argued that the High Court erred in distinguishing the Ahmadabad Pvt. Primary Teachers Association (supra) case by stating that it only applies to primary teachers. The appellant submitted that the Supreme Court’s decision did not differentiate between teachers based on the type of educational institution they work in.

Respondent’s Arguments (State of Jharkhand and the Teacher):

• The respondent argued that the Payment of Gratuity Act, 1972, applies to educational institutions, and therefore, teachers should be considered “employees” under the Act.
• The respondent contended that the teacher is an employee and is entitled to gratuity under the Act.
• The respondent argued that the judgment in Ahmadabad Pvt. Primary Teachers Association (supra) should be narrowly interpreted and applied only to primary teachers.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for consideration:

1. Whether the Courts below were justified in holding that Respondent No. 4 was entitled to claim gratuity amount from the appellant (employer) under the Payment of Gratuity Act, 1972.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Cases:

• Ahmadabad Pvt. Primary Teachers Association vs. Administrative Officer and Others (2004) 1 SCC 755 – Supreme Court of India. This case was the primary authority relied upon by the court, which held that teachers are not “employees” under Section 2(e) of the Payment of Gratuity Act, 1972.

Legal Provisions:

• Section 2(e) of the Payment of Gratuity Act, 1972: This section defines the term “employee” under the Act. The court interpreted this definition to exclude teachers.
• Section 1(3)(c) of the Payment of Gratuity Act, 1972: This section extends the Act to various establishments, including educational institutions. The court clarified that while educational institutions are covered, not all individuals working in these institutions are considered “employees” under the Act.

Judgment

How each authority was viewed by the Court?

• The Supreme Court heavily relied on Ahmadabad Pvt. Primary Teachers Association vs. Administrative Officer and Others (2004) 1 SCC 755. The court reiterated that the precedent clearly held that teachers are not “employees” under Section 2(e) of the Payment of Gratuity Act, 1972, and therefore, are not entitled to gratuity under the Act. The court explicitly stated that the High Court erred in distinguishing this case by limiting its application to primary teachers only. The Supreme Court clarified that the ratio of the judgment applies to all teachers, irrespective of the type of educational institution they work in.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the precedent set in Ahmadabad Pvt. Primary Teachers Association (supra). The Court emphasized that the definition of “employee” under Section 2(e) of the Payment of Gratuity Act, 1972, does not include teachers. The Court also focused on the principle of *noscitur a sociis*, which suggests that the meaning of a word should be understood by the company it keeps. The Court noted that the terms “skilled,” “semi-skilled,” and “unskilled” do not typically apply to the nature of work performed by teachers.

Logical Reasoning:

The Court rejected the High Court’s distinction between primary and other teachers, emphasizing that the term “teacher” was uniformly excluded from the definition of “employee” under the Act. The Court’s reasoning was primarily based on the legal interpretation of the term “employee” and the application of the precedent set in Ahmadabad Pvt. Primary Teachers Association (supra).

The Supreme Court considered and rejected the argument that teachers should be included in the definition of “employee” by stating that the legislature was aware of various definitions of “employee” in previous labor laws when the Act was passed in 1972. If the legislature intended to cover all kinds of employees, it would have used a wider definition, similar to that in Section 2(f) of the Employees’ Provident Funds Act, 1952.

The Court also considered that there are separate statutes, rules, and regulations in several States that grant gratuity benefits to teachers, which may be more or less beneficial than the gratuity benefits under the Act. The Court clarified that it is up to the legislature to take cognizance of the situation of teachers and consider separate legislation for them.

The Court quoted the following from the judgment in Ahmadabad Pvt. Primary Teachers Association (supra):

“The teachers are clearly not intended to be covered by the definition of “employee”.”

“Trained or untrained teachers are not “skilled”, “semi-skilled”, “unskilled”, “manual”, “supervisory”, “technical” or “clerical” employees.”

“Our conclusion should not be misunderstood that teachers although engaged in a very noble profession of educating our young generation should not be given any gratuity benefit.”

There were no minority opinions in this case. The decision was unanimous.

Key Takeaways

• Teachers are not considered “employees” under Section 2(e) of the Payment of Gratuity Act, 1972, and are therefore not eligible for gratuity under this Act.
• Educational institutions are not obligated to pay gratuity to their teaching staff under the Payment of Gratuity Act, 1972.
• The judgment clarifies that the ruling in Ahmadabad Pvt. Primary Teachers Association (supra) applies to all teachers, irrespective of the type of educational institution they work in.
• The Supreme Court acknowledged that several states have separate statutes, rules, and regulations granting gratuity benefits to teachers and it is up to the legislature to consider a separate legislation for teachers in this regard.

Directions

The Supreme Court did not give any specific directions in this judgment.

Specific Amendments Analysis

There is no discussion of any specific amendments in this judgment.

Development of Law

The ratio decidendi of this case is that teachers are not considered “employees” under Section 2(e) of the Payment of Gratuity Act, 1972, and therefore, are not entitled to gratuity under this Act. This judgment reaffirms the position of law established in Ahmadabad Pvt. Primary Teachers Association (supra) and clarifies that the ruling applies to all teachers, not just primary teachers.

Conclusion

The Supreme Court allowed the appeal filed by Birla Institute of Technology, setting aside the High Court’s order. The Court reiterated that teachers are not “employees” under Section 2(e) of the Payment of Gratuity Act, 1972, and thus are not entitled to gratuity under this Act. The judgment reinforces the legal position established in Ahmadabad Pvt. Primary Teachers Association (supra) and clarifies that this ruling applies to all teachers, irrespective of the type of educational institution they work in.